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Post by shanghaiscouse on Jun 20, 2020 9:57:55 GMT
I had equal exposure to both FC and RS and in my case RS was by FAR the better, although I was in 5 year not Access. The reason it seems like FC has better trustpilot reviews is that FC stopped taking new investors six months or so ago and so all the reviews in the last six months are borrowers, happy to be given bucketloads of free money courtesy of the taxpayer. If you could really be bothered and go back to last April-ish time you will see the FC reviews were just as bad as that is when their liquidity crisis hit.
I just don't see any reason for the FCA to get involved if Metro were to buy RS, we as investors are not going to get 'scrwed' any more than we already are as a result of the transaction, it would be easy for them to demonstrate that further interest cuts and capital losses are justified given the exceptional circumstances. I guess the only question is if a deal goes ahead, do they decide to lock in the interest/capital cut before the transaction or after it? If I was Metro I would insist that this is done before the transaction so they can (i) see the impact on the value of the business they are buying, (ii) reduce damage to the Metro brand. Obviously if they cut the interest to zero and go into capital by a couple of % to maintain the PF then this will result in more customers fleeing and therefore the business worth even less.
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Post by shanghaiscouse on Jun 21, 2020 11:03:21 GMT
Thinking on, there was an obvious contradiction in what I said in the earlier comment as if they put an interest rate cut through because of the transaction then that would be grounds for complaint to the FCA. So maybe this is what will make this deal very difficult to do. I interpret the behaviour of RS over the last 4 months as being to try to maintain the value of their business and stop customers fleeing by slowing down, but maintaining, RYIs, whilst at the same time running around trying to get fresh capital, and when that failed, sell the company. To maintain the value of the business they have to keep as many customers as they could so that's why they have adopted this strategy of maintaining a solid 3-5m a week of RYIs, try to give lenders confidence they will get their money back, not let it grind to a complete halt and keeping the AUM up as high as possible in the circumstances. In other words, be able to sell it as a going concern, not something that is collapsing.
FC, for example, took a different route as they had already IPOd and have a lot of cash even now. In response to their liquidity crisis they first tried to introduce a charge on secondary sales to attract new buyers who would benefit from the corresponding discount, but when that didn't work they decided to go the whole hog and exit from retail investors and closed the platform to new investors and to secondary sales of loans. From a retail investor perspective, it is now a zombie company, just watching your loans slowly repay or default, and the occasional recovery payment.
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r00lish67
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Post by r00lish67 on Jun 21, 2020 12:20:02 GMT
Thinking on, there was an obvious contradiction in what I said in the earlier comment as if they put an interest rate cut through because of the transaction then that would be grounds for complaint to the FCA. So maybe this is what will make this deal very difficult to do. I interpret the behaviour of RS over the last 4 months as being to try to maintain the value of their business and stop customers fleeing by slowing down, but maintaining, RYIs, whilst at the same time running around trying to get fresh capital, and when that failed, sell the company. To maintain the value of the business they have to keep as many customers as they could so that's why they have adopted this strategy of maintaining a solid 3-5m a week of RYIs, try to give lenders confidence they will get their money back, not let it grind to a complete halt and keeping the AUM up as high as possible in the circumstances. In other words, be able to sell it as a going concern, not something that is collapsing. FC, for example, took a different route as they had already IPOd and have a lot of cash even now. In response to their liquidity crisis they first tried to introduce a charge on secondary sales to attract new buyers who would benefit from the corresponding discount, but when that didn't work they decided to go the whole hog and exit from retail investors and closed the platform to new investors and to secondary sales of loans. From a retail investor perspective, it is now a zombie company, just watching your loans slowly repay or default, and the occasional recovery payment. This seems all quite plausible to me. (As is probably dreadfully apparent, I'm a total layperson and all of the below may well be me fundamentally misunderstanding the whole thing)Regarding the possible sale, I can see that the idea of a new source of lending might be attractive to Metro. The biggest problem at the moment to RS is probably us. We investors are a big fat moaning cost centre with high expectations of interest rate returns. That won't necessarily be the case for Metro however. Whoever takes us on will however probably be binded by RS's wind down plan and the costs associated with it: "We have looked at options for how best to manage the platform to best protect customers’ interests in this scenario. Importantly, we have decided that in these circumstances the WDP would be managed in-house by existing staff, systems and with the same regulatory rules and requirements that the platform currently operates within. This would allow RateSetter to use our product and platform expertise to maintain the quality of the execution of the plan, minimising risks that would arise if we were to transition operations to a third-party provider, and maximising outcomes for our customers"The above sounds like an expensive obligation. However, put bluntly do Metro/whomever need to give much of a toss about their existing lenders if they're never going to need them again? Frankly, either way investors are unlikely to be kept happy in my opinion. The hit has been smaller than many expected so far, but with the UK unsecured borrower currently typically cosseted in furlough schemes, that can't last forever. As I've banged on about before, the PF was already crumbing prior to COVID (PF cash halving in a year) If the stats/projections have been too rosy so far, we may find a very sudden huge degradation takes place and a capital stabilisation event. Lenders bear that cost, not the platform. For RS, dependent on us, that would have been fatal. For Metro, funded by FSCS backed savers and no longer interested in P2P investors, they may not be too fussed provided blame is deflected onto the now-defunct RS. So, perhaps the main concern in buying will be the platform costs/staff rather than worrying about keeping investors happy. I guess the value, if there is any to be had, is in the sources of profitable lending that RS have built up over time. That knack of finding borrowers who will pay a reasonable amount of interest and not default too much. Despite the fundamentals of the loanbook deteriorating in 2019, if you could take away one big cost (us) and replace us with some disinterested cash savers, it would probably look a whole lot better. For whilst legacy costs will be a costly obligation (see above), new lending can be done within their existing framework, and paying savers rather than investors a relative pittance (circa 1.00%). So does the price/value of RS boil down to ' assessed profits from new lending' - 'legacy operations/staff' ? I don't see how else it can work, as if there's any expectation of investors being shielded or bought out, surely the cost would exceed the benefit? In writing/thinking about this I've probably come full circle. I was all ready to say I don't see how it's worth it, but actually perhaps it is. There would however be some sort of reputational hit involved, and I imagine Metro will be very keen to see that reflected as an RS hit rather than on themselves.
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Post by shanghaiscouse on Jun 22, 2020 8:49:49 GMT
Not sure if Metro's reputation can sink any lower.....nothing to lose!
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Post by davee39 on Jun 22, 2020 9:25:09 GMT
Throwing out a few ideas and guesses.
Metro is not interested in running a P2P business.
RS has an £800m loan book, is loss making and does not expect to be able to grow lending.
P2P lenders have expectations of a return of 3 to 6%
Metro can borrow from the BOE at less than 1%
RS may be under the thumb of the FCA (as Lendy was for several months before they threw in the towel). The FCA may be acting as a marriage broker
The outcome is that Metro wants to (is encouraged to) buy RS and uses cheap capital to buy out existing loans. The modest cash balance in the PF sweetens the deal.
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r00lish67
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Post by r00lish67 on Jun 22, 2020 9:33:31 GMT
Throwing out a few ideas and guesses. Metro is not interested in running a P2P business.
RS has an £800m loan book, is loss making and does not expect to be able to grow lending.
P2P lenders have expectations of a return of 3 to 6%
Metro can borrow from the BOE at less than 1%
RS may be under the thumb of the FCA (as Lendy was for several months before they threw in the towel). The FCA may be acting as a marriage broker
The outcome is that Metro wants to (is encouraged to) buy RS and uses cheap capital to buy out existing loans. The modest cash balance in the PF sweetens the deal.
Yes, makes sense. Though, IMO, the PF cash is a bit illusory as I rather suspect the forecasts are (still) far too optimistic. Still helps though. I guess we'll know if that is the case if/when any further stabilisation measures are taken. Unless, fingers crossed, a solution is engineered to refinance the P2P lenders n one fell swoop in the process.
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Post by shanghaiscouse on Jun 22, 2020 12:26:41 GMT
Metro are regulated as a bank, so if they buy RS they have to run it with the same regulations as a bank, meaning own the loans and use own capital. I don't think they have the option to continue running RS as a P2P. But the loan book does not belong to RS (except for the defaulted loans transferred to the PF) the loan book belongs to the lenders. So they would have to make a kind of public offer to us for our loans. It is all way too complicated for no great benefit, and very high risk, as buying a book of pre-Covid loans now before the govt schemes expire is a huge unknown. If 2 million people lose their jobs, and with so much moral hazard as all the free government money has created huge moral hazard (half of CBILS loans expected to go bad) then who knows how much of these loans would get repaid? RS shareholders are hoping they can find someone to take it off their hands before it needs another capital injection, but I imagine the most likely scenario now is an orderly wind-up over the remaining life of the loans. I guess this is why they have stopped taking on new investors, because once the directors knew this was a possibility, they had to stop creating new liabilities or else open themselves up to legal action.
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bt
Sir Bufton Tufton, Jean Paul Sartre Zippy, Bungle, Jeffrey Archer Andre Previn and the LSO Hello
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Post by bt on Jun 22, 2020 13:36:20 GMT
Metro are regulated as a bank, so if they buy RS they have to run it with the same regulations as a bank, meaning own the loans and use own capital. I don't think they have the option to continue running RS as a P2P. But the loan book does not belong to RS (except for the defaulted loans transferred to the PF) the loan book belongs to the lenders. So they would have to make a kind of public offer to us for our loans. It is all way too complicated for no great benefit, and very high risk, as buying a book of pre-Covid loans now before the govt schemes expire is a huge unknown. If 2 million people lose their jobs, and with so much moral hazard as all the free government money has created huge moral hazard (half of CBILS loans expected to go bad) then who knows how much of these loans would get repaid? RS shareholders are hoping they can find someone to take it off their hands before it needs another capital injection, but I imagine the most likely scenario now is an orderly wind-up over the remaining life of the loans. I guess this is why they have stopped taking on new investors, because once the directors knew this was a possibility, they had to stop creating new liabilities or else open themselves up to legal action. So if Metro can't keep the P2P or the loan book, what exactly are they buying? Cheers, Burgess
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Post by shanghaiscouse on Jun 22, 2020 13:57:24 GMT
They will have to buy the loans from the lenders (us) in an offer. I don't think there is any other option. RS will present this to us as the best way of remaining as whole as possible. I don't think any such deal has been done before. It is very complicated and so RS must be in big trouble to want to pursue this, and Metro can only be interested because it is a distressed sale. I can't see it happening.
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Post by lingield on Jun 22, 2020 13:59:40 GMT
I strongly disagree. Now would be a good time to due diligence these assets, as a purchaser you would have access to a lot of information and I think you would be able to fairly accurately due diligence the quality of the loan book and assess the material risks, eg. how many borrowers have requested forbearance? how far are they into their loans? are they still employed? do they still own their own home? ETC. The key with this is materiality - 10,000 borrowers with £10 outstanding is not going to move the needle. Ratesetter are already provisioning for a significant percentage of defaults so Metro bank will accept this at face value, Metrobank need to dd the balance of the portfolio and they will do this with a focus on materiality and random sampling. Metrobank if their advisers are half competent will be able to determine exactly what they are purchasing and be able to put a reasonably accurate number against it, give or take a couple of per cent.
It is also worth remember that a very significant proportion of the loan book is likely to be strong (and possibly exceptionally strong) - and access to the relevant data/customer base is likely to hold significant value.
So it should be relatively simple for Metrobank to work out whether the positives outweigh the negatives. We can assume that on the face of it they do, as both Ratesetter and Metrobank would not enter into a period of exclusivity unless there was a deal to be done. A dd exercise of this scale would be expensive and time consuming for both parties, which shows a reasonable degree of commitment. It is a long way from done, but exclusivity is not a discussion over a cup of tea! The advisors will also be pushing this to be closed as quickly as possible, so expect news within the next few weeks.
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Greenwood2
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Post by Greenwood2 on Jun 22, 2020 14:08:46 GMT
Metro are regulated as a bank, so if they buy RS they have to run it with the same regulations as a bank, meaning own the loans and use own capital. I don't think they have the option to continue running RS as a P2P. But the loan book does not belong to RS (except for the defaulted loans transferred to the PF) the loan book belongs to the lenders. So they would have to make a kind of public offer to us for our loans. It is all way too complicated for no great benefit, and very high risk, as buying a book of pre-Covid loans now before the govt schemes expire is a huge unknown. If 2 million people lose their jobs, and with so much moral hazard as all the free government money has created huge moral hazard (half of CBILS loans expected to go bad) then who knows how much of these loans would get repaid? RS shareholders are hoping they can find someone to take it off their hands before it needs another capital injection, but I imagine the most likely scenario now is an orderly wind-up over the remaining life of the loans. I guess this is why they have stopped taking on new investors, because once the directors knew this was a possibility, they had to stop creating new liabilities or else open themselves up to legal action. Could they just set it up as Metro P2P or something under the general Metro name, but separate from the banking arm? Zopa are intending to have their bank and P2P under the same umbrella but separate entities (if it ever happens).
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Post by jochietoch on Jun 22, 2020 14:51:09 GMT
Metro are regulated as a bank, so if they buy RS they have to run it with the same regulations as a bank, meaning own the loans and use own capital. I don't think they have the option to continue running RS as a P2P. [...] Could they just set it up as Metro P2P or something under the general Metro name, but separate from the banking arm? Zopa are intending to have their bank and P2P under the same umbrella but separate entities (if it ever happens). Agree, and even if they run it under their own name I doubt they are forced to take the loans on their own book - obviously it would be a good outcome for those with RYI requests outstanding but I don't see why they would have to do it.
You can open an investment account with a high street bank, and FSCS protection simply does not apply to the invested money - the same could hold for a P2P account. What they couldn't do is try to pass the P2P account off as some kind of high-rate deposit, or market the account to unsuitable customers; and with high street banks the FCA would likely be more focussed on that as they have access to so many non-sophisticated retail customers. The FCA might force them to separate entities as with Zopa but even that is not clear to me - Zopa likely does this as the banking entity is subject to capital requirements and more stringent regulation in general, but that calculation might work out differently for an existing bank.
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Post by davee39 on Jun 22, 2020 17:17:04 GMT
The loans are not shares.
All Metro needs to do is give each lender the equivalent of an RYI, ie repay outstanding loan balances.
Metro would not be having these discussions without checking with the FCA, and the outcome will be seen as rather more favorable than administration.
Rs might be over the worst with defaults since most forbearance requests will have already been taken on by the PF.
Of course I do not actually know anything, this is all pure optimistic speculation.
My 1st April 5yr RYI may only be a few weeks away!
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Post by diversifier on Jun 22, 2020 23:50:33 GMT
As an aside TrustPilot reviewers seem particularly harsh on RS if you compare to Funding Circle which in my view has handled things considerably worse (lack of communication, lock-in of investors, persistent smell of dishonesty of loan due diligence around the time of their IPO). But then their borrowers seem to be really happy (and who wouldn't be - have some free money, no strings attached!) and they probably give them a bit of a nudge as to leaving five-star reviews.
But also just maybe this does show the extent to which people went into RS thinking of it as a juicier deposit. If that's the case I still think they have their advertising to blame to some extent - if a few people didn't get the message, well maybe they didn't pay enough attention; but if nobody did then perhaps the messaging was not so clear after all...
Didn't all lenders have to pass (a very simple) test to prove they understood their money was at risk, etc? It does seem surprising that some people seemed to have no idea how the accounts work, or what the risks were, although no one could have predicted the effect of Covid on 'normal market conditions'. I guess they just saw the headline rates and the PF and away we go. Errrr.....so the investors who actually wanted quick’ish Access (not instant, that’s a strawman), have now realised these Ts and Cs aren’t suitable for them. They will now take their money out If and When they can and invest elsewhere. And they are pointing that out to potential new investors on Trustpilot. What exactly is your problem with that? There certainly are people who are prepared to invest in 5-yr term accounts, offering 6%, with capital at low risk (by equity standards). Lots of them. Of whom I am one. However, Ratesetter has chosen not to offer that to new investors. That’s hardly the fault of the people who weren’t actually offered those accounts, is it?! RS has offered extraordinarily unattractive Ts and Cs. How were you expecting people to respond? Come rushing waving wads of £50 pound notes, crying “hey take my money and give it back....oh sometime. With.....some amount of interest. Or not. Really, you choose”. How many times do people have to say this: COVID is sort of irrelevant. This problem doesn’t disappear in a few years time. The issue is that the Access Ts and Cs are uninvestable. It will still be uninvestable when scientists genetically engineer geese to lay golden eggs, and all U.K. citizens are granted Universal Basic Billionaire status. It’s Absolutely Fine if you think that people should have read more carefully, and not invested. Either people see that in advance, and don’t invest. Or they don’t see it in advance, get event-triggered, and RYI rush. Either way, it comes to the same, the long-term investment rate into this product is zero. Then RS has zero ongoing business, because that’s the only proposition they’re offering.
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Post by diversifier on Jun 23, 2020 8:58:16 GMT
Metro are regulated as a bank, so if they buy RS they have to run it with the same regulations as a bank, meaning own the loans and use own capital. I don't think they have the option to continue running RS as a P2P. But the loan book does not belong to RS (except for the defaulted loans transferred to the PF) the loan book belongs to the lenders. So they would have to make a kind of public offer to us for our loans. It is all way too complicated for no great benefit, and very high risk, as buying a book of pre-Covid loans now before the govt schemes expire is a huge unknown. If 2 million people lose their jobs, and with so much moral hazard as all the free government money has created huge moral hazard (half of CBILS loans expected to go bad) then who knows how much of these loans would get repaid? RS shareholders are hoping they can find someone to take it off their hands before it needs another capital injection, but I imagine the most likely scenario now is an orderly wind-up over the remaining life of the loans. I guess this is why they have stopped taking on new investors, because once the directors knew this was a possibility, they had to stop creating new liabilities or else open themselves up to legal action. So if Metro can't keep the P2P or the loan book, what exactly are they buying? Cheers, Burgess They would be buying the sales channels to New borrowers. That consists of both - the brand-awareness and marketing machine to pull in direct consumer borrowers. And possibly more importantly (who knows), a set of commercial relationships with wholesale distributors of loans, such as - large property developers repeat business, car loans, Giffgaff phones.
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