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Post by shanghaiscouse on Jun 15, 2020 18:21:41 GMT
I hadn't paid much attention to Metro Bank, but seems there is someone out there whose share price has been worse than Funding Circle, and its Metro Bank! In 2018 it was trading at 4,000, now its...97. The founders baled out (kicked out), I note the current CEO has no UK banking experience having come from Bermuda where he offerred...ahem...specialist financial services. If they buy it, they will just buy the loan book and transfer it over, the absolutely last thing they need to do is to add more IT complexity. An amazing financial performance, in 2019 they manage to lose 182m on 496m of revenue, quite a feat of shareholder value destruction. I think now I understand the share price movement. Deposits have been fleeing them too, they shrank over £1bn in 2019. I always find it strange when a company has so little share capital it actually disappears as a rounding error in the accounts....
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Post by scepticalinvestor on Jun 15, 2020 18:53:13 GMT
The tone of the column was very positive on the benefits to Metro of a tie up if the price is right..they assume £62m. For some context, the £15m equity raise in December 2018 valued RS at £261m.
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zccax77
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Post by zccax77 on Jun 15, 2020 19:26:17 GMT
Total paid in capital is about £72m. Their current book value is £4m, it's either get taken over or go broke.
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Post by shanghaiscouse on Jun 16, 2020 8:14:31 GMT
It isn't very difficult to value a P2P. You just take the size of the loan book and multiply by the fee they earn, less the office and marketing costs. So with £800m AUM they earn about 1.5% which is a princely £12m a year - in revenue. Then you have to deduct their costs.....so its stuck in structural loss. these p2p businesses were supposed to be growing like rockets to reach a scale they were worth something serious, but now they are in reverse and all up for sale (FC also seen its share price move around a lot due to takeover talk). What's the upshot for investors? Not much really, maybe increase in bad debts as things alwasys fall between the gaps during a handover.
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rscal
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Post by rscal on Jun 16, 2020 8:49:16 GMT
It isn't very difficult to value a P2P. You just take the size of the loan book and multiply by the fee they earn, less the office and marketing costs. So with £800m AUM they earn about 1.5% which is a princely £12m a year - in revenue. Then you have to deduct their costs.....so its stuck in structural loss. these p2p businesses were supposed to be growing like rockets to reach a scale they were worth something serious, but now they are in reverse and all up for sale (FC also seen its share price move around a lot due to takeover talk). What's the upshot for investors? Not much really, maybe increase in bad debts as things alwasys fall between the gaps during a handover. Is the general problem of P2P one of good loan origination (i.e. a bottleneck to scale) then?
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Post by oppsididitagain on Jun 16, 2020 8:55:53 GMT
It isn't very difficult to value a P2P. You just take the size of the loan book and multiply by the fee they earn, less the office and marketing costs. So with £800m AUM they earn about 1.5% which is a princely £12m a year - in revenue. Then you have to deduct their costs.....so its stuck in structural loss. these p2p businesses were supposed to be growing like rockets to reach a scale they were worth something serious, but now they are in reverse and all up for sale (FC also seen its share price move around a lot due to takeover talk). What's the upshot for investors? Not much really, maybe increase in bad debts as things alwasys fall between the gaps during a handover. The ironic thing is, one of the reasons P2P was set up is because banks wouldn't lend after the GFC. 10 years on, banks are now buying P2P platforms.
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starfished
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Post by starfished on Jun 16, 2020 10:14:27 GMT
The ironic thing is, one of the reasons P2P was set up is because banks wouldn't lend after the GFC. 10 years on, banks are now buying P2P platforms. What P2P has taught me, or more rather their inability to scale, is that the criticism that banks "were failing to lend" was slightly unfair. Assessing non-standard risk well takes a lot of time and energy, for potentially minimal additional return. I recall in the early days one poster saying even from the 12% platforms, after allowing for defaults their expected return had been in the 5% to 6% range. And that was if the platform did everything well!
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Post by shanghaiscouse on Jun 16, 2020 10:39:22 GMT
I invested in P2P because in my mind I thought they were basically creaming off the most profitable layer of a bank's business. If you can lend money online with no physical branch structure that is a massive amount of cost cut out of the system, and my naive hope was that this would filter down to us as lenders and investors. But actually not, it seems some of these businesses (Funding Circle) went out of their way to make their cost base as high as possible (central London location, huge real estate and salary costs) when for most businesses lending to dodgy customers they will put themselves somewhere incredibly cheap and low cost like Southend, Chester, Doncaster, etc. And now here is Metro, whose genius idea was to build a massive branch network and in the process have lost almost all of their value (check out their accounts, their share capital account is zero because it was so small, £172, that it literally disappears as a rounding error)
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Post by shanghaiscouse on Jun 16, 2020 10:43:26 GMT
The ironic thing is, one of the reasons P2P was set up is because banks wouldn't lend after the GFC. 10 years on, banks are now buying P2P platforms. What P2P has taught me, or more rather their inability to scale, is that the criticism that banks "were failing to lend" was slightly unfair. Assessing non-standard risk well takes a lot of time and energy, for potentially minimal additional return. I recall in the early days one poster saying even from the 12% platforms, after allowing for defaults their expected return had been in the 5% to 6% range. And that was if the platform did everything well! Well, I guess it was true that banks were not lending for a while. But the whole Fintech thing has been ludicrously overhyped in the desperate search to find something we are good at as a country. But you should also understand that the reason some credit cards charge 30% APR is because they get 20-30% bad debts. The level of bad debt is normally hidden when you put your money with a bank, but it is brutally exposed in a P2P environment. Personally I think Ratesetter will be flooded with bad debts come September when the provision fund is exhausted and the many free money schemes from the government run out.
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coogaruk
Hello everyone! Anyone remember me?
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Post by coogaruk on Jun 16, 2020 10:55:04 GMT
10 years on, banks are now buying P2P platforms. That's the outcome I predicted, bouncycastle
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Post by oppsididitagain on Jun 16, 2020 11:19:09 GMT
The ironic thing is, one of the reasons P2P was set up is because banks wouldn't lend after the GFC. 10 years on, banks are now buying P2P platforms. What P2P has taught me, or more rather their inability to scale, is that the criticism that banks "were failing to lend" was slightly unfair. Assessing non-standard risk well takes a lot of time and energy, for potentially minimal additional return. I recall in the early days one poster saying even from the 12% platforms, after allowing for defaults their expected return had been in the 5% to 6% range. And that was if the platform did everything well! Yep, those returns sounds about right. If this Metro/RS things completes, it will be interesting to see how it operates and compared to Zopa who is now trying to apply and build a banking platform.
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Post by jochietoch on Jun 16, 2020 11:30:57 GMT
What P2P has taught me, or more rather their inability to scale, is that the criticism that banks "were failing to lend" was slightly unfair. Assessing non-standard risk well takes a lot of time and energy, for potentially minimal additional return. I recall in the early days one poster saying even from the 12% platforms, after allowing for defaults their expected return had been in the 5% to 6% range. And that was if the platform did everything well! Spot on. Like many "disruptive" tech companies, it turns out the P2P business model was not so much to remove the inefficiencies of the "entrenched" players with magic new technology, but to undercut the competition by not playing by the same rules. They are cheaper/easier lenders than the banks by doing an inferior job, and call it innovation. They can do so because they have no skin in the game, and the regulators could not be seen to be killing off this "innovation". In many ways I think it's quite lucky that Covid came around to blow this up now - has this been allowed to become a larger part of the financial sector, effectively removing the legacy overhead of due diligence from the lending market, the damage when it eventually hit the wall would have been systemic.
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Post by Ton ⓉⓞⓃ on Jun 16, 2020 11:43:00 GMT
Another aspect of this is that many banks pulled out of the small loans market as not being worthwhile esp after the GFC, some have called them "computers says No" type loans. These are below a few millions of pounds. They require more effort from the lender as they often don't fit any model and banks have given up on them as they retrenched into the bigger companies which are easier to risk rank, understand etc.
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Post by jochietoch on Jun 16, 2020 11:53:59 GMT
Another aspect of this is that many banks pulled out of the small loans market as not being worthwhile esp after the GFC, some have called them "computers says No" type loans. These are below a few millions of pounds. They require more effort from the lender as they often don't fit any model and banks have given up on them as they retrenched into the bigger companies which are easier to risk rank, understand etc. And for that reason a bank-P2P tie-up might make a lot of sense - if you insist on the decision maker taking at least a representative slice of the risk (as banks would be able to do) you remove the moral hazard, and there probably is *some* value in using data technology to automate part of the due diligence analysis on smaller loans.
The other sector of the P2P market that deserves to survive is platforms that allow the investor to do the due diligence themselves, aimed at sophisticated investors only. Hats off to those who saw this coming and dropped out once they no longer could decide who not to lend to.
An intermediary deciding whether to lend money that is not theirs - exactly what happened with US subprime mortgages. What could possibly go wrong? Oh, the clarity of hindsight
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Post by shanghaiscouse on Jun 16, 2020 12:19:48 GMT
Methinks the P2Ps are trying to sell themselves now because come September, they will be sunk when the bad debt wave crashes. The problem for them turns out to be that they aren't payment processors, so have no systemic importance to the banking system. They are also quite isolated, so if one goes bad it won't set off a run on the general banking system. Basically in a war of attrition versus banks, they will lose, as banks always have this gun up their sleeve. So now the best P2Ps are actively out there tryingt to sell themselves and maximise what they can sell for before September comes and wipes out their equity value.
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