Sustainability of Provision Fund (RS)

wuzimu
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Sustainability of Provision Fund (RS) Dec 4, 2020 23:43:50 GMT captainconfident, jlend, and 1 more like this

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Post by wuzimu on Dec 4, 2020 23:43:50 GMT

Even tho I'm out of RS, bar unfilled token orders in 5yr & 1yr markets, a sentimental reflex caused me to peruse the RS stats page for Nov and compare with the Oct figures.

This reveals the sustainability of the PF, in case any body is interested....

OCT NOV DIFF

FUM £657M £631M -£26M

Returned to investrs £940M £957M £17M

PF cash £7,9M £8.3M £0.4M

PF exp inflow £15M £12M -£3M

Interest to investrs £185M £188M £3M

My analysis : RS are now relending rather less than 1/2 of borrower repayments as should be expected as the loan book liquidates.

The main point though is the total PF (cash + exp inflows) is shrinking at ~£3m / month and is about £20M atm. That means it will be exhausted in 7 months, actually rather sooner on a cash basis. The PF could be stabilized by diverting ALL interest due to lenders to the PF, as the monthly interest (£3M) roughly equals the attenuation of the PF.

In that case I doubt RS are going to stop the 50% interest haircut at year end. In fact the haircut needs to be 100% of interest to prevent capital losses in about 6 months time. IMO opinion it would be fairer to impose that 100% haircut sooner to avoid the last people in the RS loan book taking the capital losses.

I'm sure I'm not the first to paint this picture,, but this is what Nov STATS page boils down to.

In comparison is RS's analysis here

Last Edit: Dec 9, 2020 2:36:28 GMT by wuzimu

jlend
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Sustainability of Provision Fund (RS) Dec 5, 2020 10:12:00 GMT via mobile benaj likes this

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Post by jlend on Dec 5, 2020 10:12:00 GMT

The only thing I would add is that the switch away from the PF picking up whole non asset backed loans after 3 missed payments is making it a bit fairer in managing the risk of the PF becoming exhausted.

This was always the case with the property loans.

Now the PF covers the capital missed payments each month rather than paying lenders a lump sum.

RS made the change to better manage the PF cash balance, but I think it is also fairer in the current circumstances.

Like you I exiting RS in time, but I will miss them.

shanghaiscouse

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Sustainability of Provision Fund (RS) Dec 7, 2020 19:16:47 GMT

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Post by shanghaiscouse on Dec 7, 2020 19:16:47 GMT

I would add to Mr Wuzimu (perhaps I should call myself Mr Youhanzi) is that if the haircut goes to 100% then the tax penalty on RS is even higher, as unlike say Funding Circle, you cannot make an income tax deduction on your bad debts in RS. This is the cost of being fair. In FC the loan parts are individually assigned with no fund so when one goes bad it is identifiable and you can get a tax deduction for it, but in RS because they up the haircut into the fund then the bad debt is not assignable to any individual. This makes a big difference to post-tax returns if you are paying higher rate tax, and if the haircut goes up, the difference grows.