macq
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Post by macq on Jun 23, 2020 14:13:44 GMT
Consumer/retail-orientated p2p is really over, isn't it. I would go as far as saying all p2p is over in that if RS are One of the big Three platforms with only 85,000 odd investors (i believe that's the figure mentioned) and which is probably as high as its ever going to go now - then that does not bode well for others. What you are going to be left with is niche property/debt platforms who while maybe using the term p2p for a bit longer will just morph back into high risk loan/property development companies looking for HNW only retail money the same as they were for decades before p2p came along.And to be fair the HNW client probably understood the risk better then the people who have joined due to cashbacks/access accounts/ISAs on homepages that look like bank/bs homepages. But if its not really taken off yet and with the problems last year and then whats going on now there seems no chance of growing a small investor retail product now certainly not with any form of instant access promise. Maybe the govt could offer a bond at x% to help small firms and be of interest to retail (and perhaps a stop loss point) but thats not p2p
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
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Post by beagle on Jun 23, 2020 15:26:25 GMT
That said if p2p did survive this. 85k would surge. But good point.
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chris1200
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Post by chris1200 on Jun 23, 2020 15:46:46 GMT
That said if p2p did survive this. 85k would surge. But good point. Why do you think it would surge? The p2p boom just hasn't materialised as many thought it would... Why would that change after so many people have been burned?
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macq
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Post by macq on Jun 23, 2020 15:56:10 GMT
That said if p2p did survive this. 85k would surge. But good point. I suppose i could see people staying invested if that was to happen but not a surge.But with any form of p2p type product you would be just putting off the next round of complaints/claims of mis-selling etc and a run on the funds until the next time there is a problem and the platform reverts to rate cuts or locking in customers and everybody now knows that's what will happen.As opposed to people reading (hopefully) that it would happen in the T&C's but thinking its instant access or an ISA so it must be safe and signing up anyway and for the platform the uncertainty for the future must play havoc with any business plan from this point on
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
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Post by beagle on Jun 23, 2020 16:13:02 GMT
perhaps surge could be a better word. However, should they survive, they will have done so (thus far without any capital loss) and proven they do deliver interesting returns. I would suggest as with all this industry will tighten and little players get gobbled up or fall to the side thereby enabling more retail growth upside for those still standing. If we are fair this test is the ultimate stress test , anyone surviving this will have done well, especially if they can argue no losses to investors and sustained defaults, payment breaks and a staff working from home.
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chris1200
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Post by chris1200 on Jun 23, 2020 16:59:53 GMT
perhaps surge could be a better word. However, should they survive, they will have done so (thus far without any capital loss) and proven they do deliver interesting returns. I would suggest as with all this industry will tighten and little players get gobbled up or fall to the side thereby enabling more retail growth upside for those still standing. If we are fair this test is the ultimate stress test , anyone surviving this will have done well, especially if they can argue no losses to investors and sustained defaults, payment breaks and a staff working from home. This is also presuming that any P2P provider still thinks that having retail customers is attractive after all this. That doesn't seem likely to me - I think it's become quite clear that we're not worth the hassle if they can get access to institutional funding instead.
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Post by shanghaiscouse on Jun 23, 2020 17:11:32 GMT
That said if p2p did survive this. 85k would surge. But good point. Why does anyone put any credence on this 85k number? its a roach motel, you check in but you don't check out. the queue of access RYIs would all prefer to be out, thanks very much, but RS counts them in its 'satisfied customer' numbers
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Post by shanghaiscouse on Jun 23, 2020 17:13:14 GMT
perhaps surge could be a better word. However, should they survive, they will have done so (thus far without any capital loss) and proven they do deliver interesting returns. I would suggest as with all this industry will tighten and little players get gobbled up or fall to the side thereby enabling more retail growth upside for those still standing. If we are fair this test is the ultimate stress test , anyone surviving this will have done well, especially if they can argue no losses to investors and sustained defaults, payment breaks and a staff working from home. This is also presuming that any P2P provider still thinks that having retail customers is attractive after all this. That doesn't seem likely to me - I think it's become quite clear that we're not worth the hassle if they can get access to institutional funding instead. Having one organisation originate loans then sell them on to institutions is also not a sustainable business model. Anyone remember the financial crisis? Those "institutions" that have bought the Funding Circle securitisations are vulture funds buying at a big discount.
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Post by shanghaiscouse on Jun 23, 2020 17:17:27 GMT
From The Evening Standard:
I think this from the article: "Metro, under new management, is keen on Ratesetter’s technology but is not interested in buying out the current £850 million loan book." together with this: "Metro Bank’s takeover plans for Ratesetter could stumble over concerns about its reputation being trashed if the peer-to-peer lender’s existing loans go bad and investors lose money" ..answers most of the questions of the possible deal. As I said in my waffle yesterday, the value RS holds is in their platforms ability to source borrowers. The existing investors are an expensive inconvenience with only the potential for more egg on face. The fundamental problem for Metro/RS have is that the forecasts currently baked into the loanbook are too optimistic and there are in fact losses to be borne by whomever owns it. Otherwise, why wouldn't they want such a great source of profit? So either: a) RS need to cut their profit margin from the deal so that Metro can buy off the P2P investors at par and have done with them, whilst then having extra financial leeway to wind down the loanbook themselves. or b) RS need to revise their forecasts to a realistic level before the acquisition, declare a capital reduction event, impose some level of loss on lenders, and then sell it on, keeping the profit for themselves. The difficulty with a) is that there's then probably too few funds left for golden backscratchers to make it palatable for RS. The difficulties with b) are that RS will pee off their lenders and makes it difficult for the investors to be bought out (legality/challenges?) , potentially forcing Metro to face some of the pain in running down the loanbook against a chorus of displeasure, further tarnishing their already somewhat tarnished brand. Metro barely have two sticks to rub together. They can't raise external equity as the share price is in the toilet. To buy off the loan book would be £800m, which they don't have the funds for. That's why they don't want it. RS might be sold for say £25m. So these numbers are in totally different orders of magnitude. RS shareholders accepting say £5m off the price is not going to make the loan book whole. The PF expects around £26m of losses but only £5m is cash funded. I imagine Metro is being tricky here, using the due diligence exercise as a way to get inside access to RS, its people and systems, and then they can use that info to build up their own technology. It is easier to pay a consulting firm £10m (something Metro is very good at, paying consultants) to build a new system rather than take on a legacy.
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chris1200
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Post by chris1200 on Jun 23, 2020 18:00:28 GMT
This is also presuming that any P2P provider still thinks that having retail customers is attractive after all this. That doesn't seem likely to me - I think it's become quite clear that we're not worth the hassle if they can get access to institutional funding instead. Having one organisation originate loans then sell them on to institutions is also not a sustainable business model. Anyone remember the financial crisis? Those "institutions" that have bought the Funding Circle securitisations are vulture funds buying at a big discount. We're getting very off-topic now, but providing institutional funding for loans (not managed by the institutions themselves) is not new or unique to p2p by any means, and is not really related to what happened in the financial crash. In the latter case, extremely low quality debt was packaged and re-sold as an instrument with an overly optimistic (to put it mildly) credit rating attached to it, which was often then re-sold again etc. etc. The existence of a middle-man wasn't the problem; it was the instrument itself and the blasé attitude to what it really contained. Edit: Also, what you're referring to is RS selling off parts of its loanbook (particularly non-performing elements). That's not the same thing. Institutional funding for loans is provided at the outset of origination, just like our retail money but with one institution (or a few) to deal with rather than thousands of annoying consumers and even more annoying consumer regulations.
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Post by lingield on Jun 23, 2020 18:01:06 GMT
Metrobank have billions in cash doing nothing! Provided that they can comfortable with the downside risk - they buy Ratesetter for £1 - earn £35 million a year from the deployment of excess cash, and get all staff, technology and customers for free. It is the the deal of the century, provided that the loan book can be dd and RS are not too greedy and walk away.
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Post by shanghaiscouse on Jun 23, 2020 18:37:42 GMT
They do have cash (well there was 2.5bn end-2019) but they have to hold it against likely defaults to maintain their capital. They are very exposed to UK property lending and once government money runs out a lot of people are going to find themselves in negative equity and handing back the keys. To spend a third of that on such a risky punt goes against the grain of the government telling the big banks to suspend their dividends in the expectation of huge credit losses. £2.5bn can disappear very quickly. They lost 1.6bn of cash in 2019 alone and that was without covid-19.
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Post by shanghaiscouse on Jun 23, 2020 18:45:51 GMT
Having one organisation originate loans then sell them on to institutions is also not a sustainable business model. Anyone remember the financial crisis? Those "institutions" that have bought the Funding Circle securitisations are vulture funds buying at a big discount. We're getting very off-topic now, but providing institutional funding for loans (not managed by the institutions themselves) is not new or unique to p2p by any means, and is not really related to what happened in the financial crash. In the latter case, extremely low quality debt was packaged and re-sold as an instrument with an overly optimistic (to put it mildly) credit rating attached to it, which was often then re-sold again etc. etc. The existence of a middle-man wasn't the problem; it was the instrument itself and the blasé attitude to what it really contained. Edit: Also, what you're referring to is RS selling off parts of its loanbook (particularly non-performing elements). That's not the same thing. Institutional funding for loans is provided at the outset of origination, just like our retail money but with one institution (or a few) to deal with rather than thousands of annoying consumers and even more annoying consumer regulations. I'm only referring to Funding Circle's securitisations, which are exactly what happened in the financial crisis. FC originated the loans, then resold packages to vulture / special situations funds in $250m tranches, who have repackaged them and sold them on. FC's debt underwriting was appalling, I have had 25% default rates, so what is inside those 'securitisations' could be junk. Who knows who now holds them, or what is left of them after being sliced and diced. The last one they did was with Waterfall Asset Management, who say ", ...with subsequent expansion into other loan sectors, including small balance commercial and reverse mortgage loans. The strategy may seek to enhance returns through the use of non-recourse leverage via securitization". In other words, they repackage the loans into new securities and sell them on....
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chris1200
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Post by chris1200 on Jun 23, 2020 18:49:07 GMT
I'm only referring to Funding Circle's securitisations, which are exactly what happened in the financial crisis. FC originated the loans, then resold packages to vulture / special situations funds in $250m tranches, who have repackaged them and sold them on. FC's debt underwriting was appalling, I have had 25% default rates, so what is inside those 'securitisations' could be junk. Who knows who now holds them, or what is left of them after being sliced and diced. The last one they did was with Waterfall Asset Management, who say ", ...with subsequent expansion into other loan sectors, including small balance commercial and reverse mortgage loans. The strategy may seek to enhance returns through the use of non-recourse leverage via securitization". In other words, they repackage the loans into new securities and sell them on.... Okay but in the post you quoted from me, I was talking about institutional funding. That's very different to selling securitised debt instruments.
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Post by bouncycastle on Jun 24, 2020 8:48:12 GMT
I thought it was a poor article written in the Standard. Some of what they say might be true, but this has been going on for too long as a deal that they know where all the bodies are buried by now. This has been on-going for a couple of months. It may well still not happen of course, but the cards have been on the table for ages, and Metro, despite having had a poor 18 months, are not total clowns and get the stresses on loan books.
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