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Post by GSV3MIaC on Jul 3, 2015 18:23:17 GMT
I see 944 just closed, and I can't see any of the usual suspects in the bids list, so I guess they are either out of ammo, or have decided that Es are not going to fly off the shelves at 3% like they had hoped.
The tall one (or is the iii ?) doesn't seem to want to play with E**, (or even usually D) but the other were paddling hard initially .. no more, it seems. Bit too soon to guess what the SM will actually support, but the latest crop lasted long enough for even autobidders to get a look in (assuming they have set a rate for Es), in which case 'dump at par if worst comes to worst' won't be as easy either, since the autobidders will (often) already have some.
Still can't see the logic of having the minimum expected net return on E at 9.2%, whereas you have to struggle to get that on a D (and certainly won't achieve it at MBR). With losses now being income-deductible, tax-wise, the disincentive for some folks to hold high rate parts with corresponding high rates of losses has pretty much gone away.
** ooops, I see he WAS in the big one, and is still in at 19.4%. Maybe the others were just to small to fiddle with!
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SteveT
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Post by SteveT on Jul 3, 2015 20:37:42 GMT
The highest "expected net return" on a D loan is 9.0% at the highest permitted 15% gross (which is very rarely achievable), whereas the lowest on an E loan is 9.2% at the MBR of 18.2%, which anyone can get on any E loan. That's entirely surreal. No wonder the E rate loans are popular at MBR; even if you hold them to term (which I wouldn't dream of doing) you should be better off than with D loans. If you sell after a couple of months, you should be a lot better off.
One of those limits is totally bonkers, and I'm certain it's the top bid rate limit on a D.
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blender
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Post by blender on Jul 3, 2015 20:43:34 GMT
... ** ooops, I see he WAS in the big one, and is still in at 19.4%. Maybe the others were just to small to fiddle with! Fortunately the tall one bid after me. So now I have £30k of cover, thanks.
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Post by GSV3MIaC on Jul 3, 2015 20:59:21 GMT
Well yes, but if the tall one decides to keep playing he can put £30k in (and boot you out) in rather less than a minute. 8>. Usually he walks away fairly early (and sometimes reappears at the last minute) but not always..
Place your bets .. will that one get to 18.2% too, or will it stick higher? (as Stevet says, even 9.2% net looks pretty good, as long as you are not over exposed to one of the 8% losers).
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blender
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Post by blender on Jul 3, 2015 22:15:14 GMT
I'm pleased that he/she is in at 19.4 and not 18.2. It may take the weekend to clear them and I hope our borrower will accept on Monday.
If I am silly enough to be caught with a (non-fraudulent) E band default then I will go back to Autobid.
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dorset
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Post by dorset on Jul 4, 2015 14:11:11 GMT
A business is only going to borrow at 18.2% if either its ROCE is higher than 18.2% and/or it is so short of cash that it has become a survival issue. Taking 13924 as a case in point then it’s clearly not about ROCE but about a company that has a large negative current ratio and is over trading. This could well be a viable business but it needs a complete financial restructuring not loans at 18.2%.
I think that the FC “E” band initiative is fascinating to watch but will not be getting involved. Finally I don’t think that the eventual defaults rates will be much of a guide as each of these businesses are so “unhappy in their own particular way”.
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Post by goldservice on Jul 4, 2015 16:20:37 GMT
In January this year I tried out someone’s suggestion on this forum: to buy C- loans at a high rate eg above 13.5 and then sell them at par before the first payment was made. I stopped doing this when closing rates drifted downwards and early closers became scarce.
It strikes me that those chasing E’s may be doing a similar thing - and it looks viable because the finishing rates are high. But the unknown is how easy it will be to sell at par. In the case of the C- experiment, I found that I had to put the parts up for sale around a week before the first payment was due if I was to be sure of selling them at par before then.
So money was tied up for the days during the auction, and then I was getting only 21 days rather than 30 days of interest. As I chased the rate on several C-s, only some of which would close above 13.5, my money was tied up there as well.
So overall I felt it had not really been worth it .
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nick
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Post by nick on Jul 4, 2015 16:48:32 GMT
In January this year I tried out someone’s suggestion on this forum: to buy C- loans at a high rate eg above 13.5 and then sell them at par before the first payment was made. I stopped doing this when closing rates drifted downwards and early closers became scarce. It strikes me that those chasing E’s may be doing a similar thing - and it looks viable because the finishing rates are high. But the unknown is how easy it will be to sell at par. In the case of the C- experiment, I found that I had to put the parts up for sale around a week before the first payment was due if I was to be sure of selling them at par before then. So money was tied up for the days during the auction, and then I was getting only 21 days rather than 30 days of interest. As I chased the rate on several C-s, only some of which would close above 13.5, my money was tied up there as well. So overall I felt it had not really been worth it . It could work, but be very careful of rounding. Unless you buy very large parts, rounding of interest over the short term (days) will generally always be down due to the figures involved (ie 1p is the smallest denominal unit). May not seem like a big deal, but if 18.2% works out at say 1.4p over a day or so, it your proceeds will be rounded down to 1.0p and bang your return has slumped to 13%!!!! Just something to be weary of.....
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adrianc
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Post by adrianc on Jul 4, 2015 16:57:04 GMT
It strikes me that those chasing E’s may be doing a similar thing - and it looks viable because the finishing rates are high. But the unknown is how easy it will be to sell at par. IIRC Autobodge users will need to explicitly turn E on in their settings, it won't be set automatically. So for that theory to work, you'd need to find the ABers who've taken the interest, time and effort to do that...
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nick
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Post by nick on Jul 4, 2015 17:00:09 GMT
In January this year I tried out someone’s suggestion on this forum: to buy C- loans at a high rate eg above 13.5 and then sell them at par before the first payment was made. I stopped doing this when closing rates drifted downwards and early closers became scarce. It strikes me that those chasing E’s may be doing a similar thing - and it looks viable because the finishing rates are high. But the unknown is how easy it will be to sell at par. In the case of the C- experiment, I found that I had to put the parts up for sale around a week before the first payment was due if I was to be sure of selling them at par before then. So money was tied up for the days during the auction, and then I was getting only 21 days rather than 30 days of interest. As I chased the rate on several C-s, only some of which would close above 13.5, my money was tied up there as well. So overall I felt it had not really been worth it . I think the bottom line is that credit for smaller companies is tough. Invoice factoring is a common form of short term funding for smaller businesses and the effective rates after fees are generally 20%+. As we know, banks are very weary of taking much risk on their balance sheet and simply won't lend to business they deem risky (eg probably anything above B-C on FC's credit scoring system) and any price/rate. I always find it ironic about stories over the government on one hand trying to actively promote lending to smaller businesses but on the other hand tightening risk limits banks are allowed to take on by increasing ratios etc- the two are generally incompatible but I guess make a good sound bite! The other major plus FC has over most traditional lenders is the borrower's ability to repay early which must be easily worth 3-5% in option value. So bottomline, I don't necessarily think companies willing to borrow at 20%+ are necessarily up s**t creek without a paddle, but have a business that does not lend itself to secured lending or is an in out of favour industry/sector (ie small businesses). That said, the risk associated with these borrowers is a lot higher so one needs to be compensated for both the higher risk of default, but also the likely higher variability of the net return which is a risk in itself (ie rates on E loans need to be higher than just the incremental default risk to account for the more likely scatter of returns around the average (unless you have an infinitely big portfolio).
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Post by goldservice on Jul 4, 2015 17:30:03 GMT
Nick said "the government on one hand trying to actively promote lending to smaller businesses but on the other hand tightening risk limits banks are allowed to take on by increasing ratios etc- the two are generally incompatible"
I had thought that the former was retail/commercial banking but the latter related to investment banking - so perhaps no conflict?
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Post by GSV3MIaC on Jul 4, 2015 17:47:24 GMT
It strikes me that those chasing E’s may be doing a similar thing - and it looks viable because the finishing rates are high. But the unknown is how easy it will be to sell at par. IIRC Autobodge users will need to explicitly turn E on in their settings, it won't be set automatically. So for that theory to work, you'd need to find the ABers who've taken the interest, time and effort to do that... I think you'll find that newbies joining in future will have E turned on by default - it's just the existing ones who need to adjust their settings manually (since it represents a change over what they initially signed up for). At least IIRC that's how it was when C- appeared.
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Post by goldservice on Jul 5, 2015 7:58:07 GMT
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blender
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Post by blender on Jul 5, 2015 21:57:58 GMT
The vertically enhanced one has been kicked out. Will the £30k go back in, at what rate, and when?
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am
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Post by am on Jul 5, 2015 22:39:07 GMT
The vertically enhanced one has been kicked out. Will the £30k go back in, at what rate, and when? It took quite a while for 19.4% to be bid out. Unless there's a last minute rush this looks as if it's going to finish above 18.2%.
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