mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 16, 2015 12:06:44 GMT
I think the GBBA is a great idea, but why does it need to invest in loans of 12% or above ? Short-term: To allow AC to fund the PF ASAP? Long-term: To boost AC's bottom line?
|
|
bg
Member of DD Central
Posts: 1,368 
Likes: 1,929
|
Post by bg on Sept 16, 2015 12:11:28 GMT
That is a massive worry for me.. Really? And yet you still invest in other P2P loans? How do you sleep at night? Strikes me that the scenario Chris outlines is pretty far-fetched, at least versus other P2P loss possibilities. But if this serves to reinforce that the QAA is NOT the same thing as an FSCS-protected bank savings account and so keeps some of the DART money away, that's fine by me. I'll leave aside the condescending tone and explain why it's a problem. I don't think it's by design but the system as is (if i understand it correctly) bears the hallmarks of a ponzi/pyramid scheme. It also is strangely reminiscent of some of the MBS structures that blew up in the financial crisis ("house prices can never go down..", how many times did i hear that?). Consider an environment where Grandoma Ethol invests her £10k life savings in the QAA liking the 3.75% headline interest. A couple of loans default (and i'm talking proper defaults, not just missed payments), leaving a 60k hit to the QAA. The provision fund is 50k say (and it doesn't really matter what it is, losses can be more). Given the defaults there is a withdrawal of liquidity from the platform. Regular users get their money out of the QAA but poor old Ethol comes along late and there is nothing left. She has lost her £10k even though the portfolio hit was only 1%. That doesn't seem right to me. You may say the provision fund may keep accruing so eventually she gets her money back...but again that is like a pyramid scheme. Repayment on the never never. Last out takes all of the hit.
|
|
|
|
Post by chris on Sept 16, 2015 12:14:42 GMT
chris, I'm putting the breakfast analogy to one side, and coming straight to the point. I think the GBBA is a great idea, but why does it need to invest in loans of 12% or above ? Loans #74 and #152 are actually paying default interest, but they are included in the GBBA, simply because they haven't been subjected to monitoring event. Yet every month they get reviewed. Large loans paying c.10% are ideal for the GBBA but it sends out the wrong message when small and medium sized loans of 12% are included. It's an easy fix. For the most part going forward it probably wouldn't invest in those loans. The only loans that are going to be over 12% are likely to be those with security that doesn't match the GBBA criteria or really large loans where there's a liquidity premium charged to the borrower so there should be plenty to go around. If there's a monitoring event then it'll pull out of those loans.
|
|
niceguy37
Member of DD Central
Posts: 504
Likes: 254
|
Post by niceguy37 on Sept 16, 2015 12:19:11 GMT
May I enquire: Does this means it might offer any monitoring event loans at a discount in order to exit, or will the QAA rely on algorithm priority over the luckless MLIA lenders in order to exit?
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 16, 2015 12:26:46 GMT
If there's a monitoring event then it'll pull out of those loans. : If the GBBA gets big enough that it has a significant position in all eligible loans, then any monitoring event will cause a significant dump of parts onto the Aftermarket for the affected loan as soon as trading resumes. (I'm presuming that the GBBA wouldn't be allowed to sell before anyone else is.) If GBBA selling is prioritised, as you've suggested it is, won't that significantly disadvantage any MLIA investors who also are trying to reduce their holdings?
|
|
|
|
Post by chris on Sept 16, 2015 12:28:23 GMT
May I enquire: Does this means it might offer any monitoring event loans at a discount in order to exit, or will the QAA rely on algorithm priority over the luckless MLIA lenders in order to exit? No it will not offer loan units at a discount. QAA takes absolute priority at par sales, GBBA/GEIA get some level of priority over MLIA at par sales. MLIA can bypass both with discounts.
|
|
|
|
Post by chris on Sept 16, 2015 12:28:43 GMT
If there's a monitoring event then it'll pull out of those loans. : If the GBBA gets big enough that it has a significant position in all eligible loans, then any monitoring event will cause a significant dump of parts onto the Aftermarket for the affected loan as soon as trading resumes. (I'm presuming that the GBBA wouldn't be allowed to sell before anyone else is.) If GBBA selling is prioritised, as you've suggested it is, won't that significantly disadvantage any MLIA investors who also are trying to reduce their holdings? GBBA has to sell at par. MLIA does not.
|
|
|
|
Post by chris on Sept 16, 2015 12:34:26 GMT
Really? And yet you still invest in other P2P loans? How do you sleep at night? Strikes me that the scenario Chris outlines is pretty far-fetched, at least versus other P2P loss possibilities. But if this serves to reinforce that the QAA is NOT the same thing as an FSCS-protected bank savings account and so keeps some of the DART money away, that's fine by me. I'll leave aside the condescending tone and explain why it's a problem. I don't think it's by design but the system as is (if i understand it correctly) bears the hallmarks of a ponzi/pyramid scheme. It also is strangely reminiscent of some of the MBS structures that blew up in the financial crisis ("house prices can never go down..", how many times did i hear that?). Consider an environment where Grandoma Ethol invests her £10k life savings in the QAA liking the 3.75% headline interest. A couple of loans default (and i'm talking proper defaults, not just missed payments), leaving a 60k hit to the QAA. The provision fund is 50k say (and it doesn't really matter what it is, losses can be more). Given the defaults there is a withdrawal of liquidity from the platform. Regular users get their money out of the QAA but poor old Ethol comes along late and there is nothing left. She has lost her £10k even though the portfolio hit was only 1%. That doesn't seem right to me. You may say the provision fund may keep accruing so eventually she gets her money back...but again that is like a pyramid scheme. Repayment on the never never. Last out takes all of the hit. Don't forget the account isn't 100% liquid so it would take time for there to be a run on the account of several days at a minimum. That gives plenty of opportunity for us to suspend withdrawals, etc. The alternative end of the spectrum would be that if 1% of the holdings are in defaulted loans that all lenders have to retain 1% in the account. That seems silly on a liquidity account to begin with but how does that work as other investors put funds in? Do they then have to hold 1% of their funds as well? What if someone invests just as the default occurs vs someone who's had their funds in the account for a month? We're also talking about defaults but to Granny Ethol what should really matter is losses. There you need not only the loan value to exceed the PF balance but the total losses to exceed the PF balance. The risks are present but should still be small, but that is why you're paid interest after all.
|
|
jonah
Member of DD Central
Posts: 2,031
Likes: 1,113
|
Post by jonah on Sept 16, 2015 12:34:43 GMT
chris: If the GBBA gets big enough that it has a significant position in all eligible loans, then any monitoring event will cause a significant dump of parts onto the Aftermarket for the affected loan as soon as trading resumes. (I'm presuming that the GBBA wouldn't be allowed to sell before anyone else is.) If GBBA selling is prioritised, as you've suggested it is, won't that significantly disadvantage any MLIA investors who also are trying to reduce their holdings? GBBA has to sell at par. MLIA does not. Can you share any sort of view of the volume of discounted trades? Even something like '1% of trades' or whatever the number is (to as many decimal places as you like) would be interesting.
|
|
bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
|
Post by bigfoot12 on Sept 16, 2015 12:35:35 GMT
How big is the provision fund? If you answer that I will have a go at answering your question. It is aiming for 5%, but what is now? Are the exposures to each of the funds ring-fenced? Next time AC has a loan defaulting, especially if it is a recently issued loan I will withdraw all my money from the QAA and then ask does the QAA own any of it. Others might do the same. If the answer is "yes", or "won't say" then I would expect more people to exit the QAA. If the problem loan is one like the Plumber (ie large and recent) the share owned by the fund might exceed the provision fund - we don't know because nobody will say how it works. I am happy to take the risk that that might happen, but not once I know it has happened. SteveT will you really put money into a fund which you know has a problem loan in it without accepting any sort of price discount? Should anyone lose money which went into the QAA after one or more of the defaults which caused the loss I would expect them to complain loudly. The QAA banner on the website clearly states "Provision fund aiming for 5% bad debt coverage", which I'm happy to take at face value given my exposure is limited to my idle cash. So you would put new money into the QAA even if it contained a known defaulted loan?
|
|
|
|
Post by Butch Cassidy on Sept 16, 2015 12:35:41 GMT
May I enquire: Does this means it might offer any monitoring event loans at a discount in order to exit, or will the QAA rely on algorithm priority over the luckless MLIA lenders in order to exit? No it will not offer loan units at a discount. QAA takes absolute priority at par sales, GBBA/GEIA get some level of priority over MLIA at par sales. MLIA can bypass both with discounts. So not only are MLIA lenders at the back of the queue to buy current loans they are also forced into offering a MINIMUM 1% discount to gain priority in sales as well?
|
|
|
|
Post by chris on Sept 16, 2015 12:35:39 GMT
GBBA has to sell at par. MLIA does not. Can you share any sort of view of the volume of discounted trades? Even something like '1% of trades' or whatever the number is (to as many decimal places as you like) would be interesting. Currently or in a loan with a monitoring event? At the moment it'll be tiny as only healthy loans are for sale and in general there's more demand than supply.
|
|
SteveT
Member of DD Central
Posts: 6,875
Likes: 7,924
|
Post by SteveT on Sept 16, 2015 12:43:07 GMT
Really? And yet you still invest in other P2P loans? How do you sleep at night? Strikes me that the scenario Chris outlines is pretty far-fetched, at least versus other P2P loss possibilities. But if this serves to reinforce that the QAA is NOT the same thing as an FSCS-protected bank savings account and so keeps some of the DART money away, that's fine by me. I'll leave aside the condescending tone and explain why it's a problem. I don't think it's by design but the system as is (if i understand it correctly) bears the hallmarks of a ponzi/pyramid scheme. It also is strangely reminiscent of some of the MBS structures that blew up in the financial crisis ("house prices can never go down..", how many times did i hear that?). Consider an environment where Grandoma Ethol invests her £10k life savings in the QAA liking the 3.75% headline interest. A couple of loans default (and i'm talking proper defaults, not just missed payments), leaving a 60k hit to the QAA. The provision fund is 50k say (and it doesn't really matter what it is, losses can be more). Given the defaults there is a withdrawal of liquidity from the platform. Regular users get their money out of the QAA but poor old Ethol comes along late and there is nothing left. She has lost her £10k even though the portfolio hit was only 1%. That doesn't seem right to me. You may say the provision fund may keep accruing so eventually she gets her money back...but again that is like a pyramid scheme. Repayment on the never never. Last out takes all of the hit. Apologies, I should have included a  to convey my dubious attempt at humour. In the scenario you outline, my main worry would be how it was Grandma Ethel came to invest her £10k life savings in the QAA (ie. Are the risk warnings clear enough? Should there be a specific "I realise theoretically I could lose every penny of this" check box?). Overall I think the issue is that the QAA is trying to please two completely different demographics with two completely different attitudes to risk. The first group (of which I'm part) is happy to invest a portion of their net worth in P2P loans across a wide range of risk profiles and sees the QAA as a handy place to keep their idle "awaiting investment" funds earning a few pennies; a provision fund capable of covering 5% bad debt is so much better than anything else out there, it feels bullet-proof by comparison. The second group is seeking to squeeze a few more basis points out of their cash deposits and regards going even slightly beyond the FSCS compensation limit with one bank as a risk. It's always going to be hard to keep both audiences happy.
|
|
|
|
Post by chris on Sept 16, 2015 12:45:50 GMT
No it will not offer loan units at a discount. QAA takes absolute priority at par sales, GBBA/GEIA get some level of priority over MLIA at par sales. MLIA can bypass both with discounts. So not only are MLIA lenders at the back of the queue to buy current loans they are also forced into offering a MINIMUM 1% discount to gain priority in sales as well? Yes. Giving up something in the region of 1 month's interest in order to gain PRIORITY of sale is not a big ask. On FC you pay the platform 0.25% on any sale and many are paying multiple percent premiums just to buy into loans. On RS you can pay huge amounts to exit a loan early because they've built their market around loan terms. SS to invest in popular loans you don't get to read the loan documentation, you enter blind. With the MLIA you are keeping the entire interest payment, earning larger returns, and have access to buying and selling for discounts and premiums when that feature is enabled. You get to review the loan documents up front, place hands off buy / sell instructions that then do the heavy lifting for you, even get to earn interest on your idle funds whilst they wait to be deployed. The down side is you don't get provision fund protection and you lose some liquidity at par value. Even then that second point is under continual review as we want to balance the market not cripple the MLIA.
|
|
sqh
Member of DD Central
Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
Posts: 1,428
Likes: 1,212
|
Post by sqh on Sept 16, 2015 12:46:14 GMT
chris, I'm putting the breakfast analogy to one side, and coming straight to the point. I think the GBBA is a great idea, but why does it need to invest in loans of 12% or above ? Loans #74 and #152 are actually paying default interest, but they are included in the GBBA, simply because they haven't been subjected to monitoring event. Yet every month they get reviewed. Large loans paying c.10% are ideal for the GBBA but it sends out the wrong message when small and medium sized loans of 12% are included. It's an easy fix. For the most part going forward it probably wouldn't invest in those loans. The only loans that are going to be over 12% are likely to be those with security that doesn't match the GBBA criteria or really large loans where there's a liquidity premium charged to the borrower so there should be plenty to go around. If there's a monitoring event then it'll pull out of those loans. Yesterday, andrewholgate sidestepped this question and today you have fobbed it off. It creates a very bad impression of Assetz Capital when you deny lenders the chance to invest in loans at 15% or 18%, and cream off over half the interest. You don't need to, the provision fund will build-up almost as fast with the large 10% and 11% loans. "For the most part going forward it probably wouldn't invest in those loans." Lets start going forward now!
|
|
to convey my dubious attempt at humour.