markr
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Post by markr on Feb 25, 2014 9:45:00 GMT
I've just been reading the terms of the proposed provision fund that ReSoc are introducing. Cripes!
The fund is going to be funded by borrowers and lenders, with the lenders contribution being set initially at 15% of interest earned although ReSoc can change this with just one month's notice. I don't think any other P2P platform explicitly charges lenders for their provision fund, but of course having the fund lowers the rates available to lenders. ReSoc is allowing lenders to opt out of the fund if they prefer.
Some of the things that concern me about it are...
1. The maximum amount that will be paid out of the fund is 80% of outstanding capital, and for some lenders and loans it may be as low as 10%, a far cry from the "every lender every penny" aim of the RS fund. The percentage you get depends on your "risk appetite", i.e. the "average" risk of your portfolio - the riskier your portfolio the less you get. For some reason, my risk appetite has always been shown on my dashboard as D, even when I had no D loans, so hopefully that will be fixed before it is used for this.
2. The managers of the fund will be allowed to invest up to half the fund in ReSoc loans. Isn't this the sort of thing that got the banks into such a mess - if there's a spike in defaults and the fund is needed most, it will be also be suffering losses. There's also an opportunity for ReSoc to manipulate the market.
3. This one is staggering and definitely worth noting before opting in. ReSoc itself will be able to claim for its own operating losses from the fund. If the ReSoc platform makes a loss in a given month, it can apply for up to 10% of the fund to cover those losses. Note that's 10% of the fund, not 10% of the losses. Yes, ReSoc could empty the fund in less than a year to cover its own losses if Ameuri let it (would they? Who knows).
The provision fund is expected to go live on Friday and current ReSoc lenders will be able to opt in, new lenders will have to opt out. Read the final Ts&Cs before opting in though!
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bugs4me
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Post by bugs4me on Feb 25, 2014 12:17:17 GMT
'ReSoc has always been a bit on the small side for me but I was considering taking a small position as a place-marker just in case they got critical mass. I don't really see the need for ReSoc to have a "provision fund" since its in the high-yield loan part of the market where investors need to be willing to take the default risk. However, seeing those terms I just want to steer as far away as possible. Investing 50% of proceeds of a fund set up to protect credit risky loans into the same credit risky loans ... oh lovely correlation trade that's going to be in a stress scenario! ResSoc using the money to pay for its own losses ... nicely subordinating the lenders! Run away run away .... It's certainly a way of shooting yourselves in the foot IMO. IIRC there was something in their T&C's that put me off originally revolving around bad debt collection although this may have been changed now. How can you justify a provision fund being allowed to invest outside of it's original intention is beyond belief and I doubt if this would be permitted by future FCA regulation so why even try it on. A provision fund is meant to be ring fenced otherwise it's a casino banking operation. All a bit slippery to me. So agreed - run away.
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markr
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Post by markr on Feb 25, 2014 13:46:29 GMT
I've always been happy with ReSoc, I'm only a toe-dipper that's mainly because there aren't many loans listed there is a limit to how fast I can lend without being over exposed to any loan. My current average rate is about 16% which I think is about right given the risk, and the recent cashback offer has been welcome.
I welcomed the idea of a provision fund (IIRC, it would be the first in the P2B market) and I voted in favour in the recent poll because I was expecting something more like the RS and Zopa funds. Maybe P2B lending is just too risky to be able to maintain a fund that attempts to reimburse all capital and interest and still offer competitive rates to both borrowers and lenders.
Unfortunately, I didn't see the document until after the discussion deadline had passed, but hopefully they got enough feedback to alter some of the more unpalatable parts (the bit about covering ReSoc's own losses is the deal breaker for me, especially since they can cover 100% of theirs but the most I can expect is 80%!)
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bugs4me
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Post by bugs4me on Feb 25, 2014 14:15:39 GMT
I've always been happy with ReSoc, I'm only a toe-dipper that's mainly because there aren't many loans listed there is a limit to how fast I can lend without being over exposed to any loan. My current average rate is about 16% which I think is about right given the risk, and the recent cashback offer has been welcome. I welcomed the idea of a provision fund (IIRC, it would be the first in the P2B market) and I voted in favour in the recent poll because I was expecting something more like the RS and Zopa funds. Maybe P2B lending is just too risky to be able to maintain a fund that attempts to reimburse all capital and interest and still offer competitive rates to both borrowers and lenders. Unfortunately, I didn't see the document until after the discussion deadline had passed, but hopefully they got enough feedback to alter some of the more unpalatable parts (the bit about covering ReSoc's own losses is the deal breaker for me, especially since they can cover 100% of theirs but the most I can expect is 80%!) I haven't seen the document as I don't invest with them. But if it is as appears that ReSoc can cover their company operating expenses losses with a provision fund then it is anything but a provision fund. Effectively, folks contributing to it are subsidising ReSoc from time to time. Not palatable IMO.
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jimbo
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Post by jimbo on Feb 25, 2014 14:16:22 GMT
So this is a provision fund that can potentially protect Rebuilding Society from its own operating losses should it incur them...? The less said about the mandate to invest the provision fund in platform loans, the better. Just how in the heck can this be called a provision fund?! It's effectively an investment sub-fund...
Shouldn't the money in the provision fund be ring-fenced and placed in the custody of a trustee so RSoc can't touch it?
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alison
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Sanctuary!!
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Post by alison on Feb 25, 2014 14:33:18 GMT
I haven't seen the document as I don't invest with them. But if it is as appears that ReSoc can cover their company operating expenses losses with a provision fund then it is anything but a provision fund. Effectively, folks contributing to it are subsidising ReSoc from time to time. Not palatable IMO. I do have a small investment with them but I haven't seen the document. First I have heard is what I have read on here and I don't like the sound of a lot of it. I had started to run down my holding so will probably now accelerate the reduction.
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bugs4me
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Post by bugs4me on Feb 25, 2014 14:35:38 GMT
Shouldn't the money in the provision fund be ring-fenced and placed in the custody of a trustee so RSoc can't touch it? All the others I've come across have been ring fenced even though the directors of the trading company and the provision fund company may be the same. A big but applies though and that is the provision fund is for the benefit of the lenders/investors. In this case it looks like ReSoc can just raid the provision fund at any time to balance their monthly profit/loss account. Not healthy and I hope that's not the situation.
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Post by bengilbert on Feb 25, 2014 14:56:39 GMT
I agree with a lot of the concerns here but just want to point out that, as I understand it, this is just a proposal which they have made available in order to get feedback on it. I would guess they'll be making some changes.
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markr
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Post by markr on Feb 25, 2014 15:21:33 GMT
Sorry, for those who haven't seen it, it's linked from a blog post of 7th Feb titled "Results and actions from our Contingency Fund Survey". Yes, the document was a draft for discussion, but the discussion period is over, it is supposed to be going live on Friday and no new document has appeared so, at least for now, we must base our views on the draft. To be honest, even if the final version is radically different from the draft, it still amazes me that they even proposed something like this.
For the record, yes the fund is going to be ring-fenced and operated by Ameuri, the same company that operates their recoveries, and I don't know if the two companies share directors.
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bugs4me
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Post by bugs4me on Feb 25, 2014 16:06:58 GMT
Sorry, for those who haven't seen it, it's linked from a blog post of 7th Feb titled "Results and actions from our Contingency Fund Survey". Yes, the document was a draft for discussion, but the discussion period is over, it is supposed to be going live on Friday and no new document has appeared so, at least for now, we must base our views on the draft. To be honest, even if the final version is radically different from the draft, it still amazes me that they even proposed something like this. For the record, yes the fund is going to be ring-fenced and operated by Ameuri, the same company that operates their recoveries, and I don't know if the two companies share directors. How can it be ring fenced if ReSoc can dip into it whenever they feel like it. It simply doesn't make sense and something's not right here. Maybe it all got lost in translation from brain cell to paper. 
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Post by davee39 on Feb 25, 2014 18:26:57 GMT
I am not invested with Rebuilding Soc and would not be tempted by the provision fund. RS and Zopa can pull one off due to their size but this looks like a bit of window dressing. Rebuilding and Funding Knight seem to be scrabbling about for FC's droppings.
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bugs4me
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Post by bugs4me on Feb 25, 2014 18:50:51 GMT
I am not invested with Rebuilding Soc and would not be tempted by the provision fund. RS and Zopa can pull one off due to their size but this looks like a bit of window dressing. Rebuilding and Funding Knight seem to be scrabbling about for FC's droppings. But RS and Zopa keep their respective provision funds separate. I've never heard any suggestion from them dipping into those funds to prop up their balance sheet. Okay, accept it was only a discussion document from ReSoc but even the mere thought of it stops a provision fund from being a provision fund IMO. If that is management thinking to allow that idea to go into a discussion document then it makes me wonder what else lurks in their thinking.
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Post by nickrebuildings on Feb 27, 2014 15:12:22 GMT
Hi All,
Thanks for the comments and feedback on here, by those that use us already and those that don't. It's a process and we put it out to consultation to serve exactly this purpose. Some of the comments have served their purpose!
What we won't be doing is launching anything that is going to be unpopular, unfair or detrimental to our lenders.
We're committed to providing a good value service to all, but we recognise the typical lender demographic is likely to change with regulation and there will be those coming into the market that want a degree of fall-back in the absence of any Government-backed scheme, like the FSCS offers for other products. If you don't try it...
Regards,
Nick
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Post by Deleted on Aug 14, 2014 20:33:22 GMT
Please don't do this, it's a terrible idea. I know you're under a lot of pressure and it won't be a make-or-break thing, but seriously bail-outs are always bad news. Sane investors need to take responsibility for their choices and that means learning from losses. If not, we're part of the problem. Society's going to the toilet and REBS is an island of sanity. Please think very hard and long before making it artificially more attractive to increase risk-taking and ignore the fundamentals.
The actor most likely to suffer will be the platform itself.
Bail-outs and subsidies very bad. The FSCS is a tremendous evil in the world and REBS should definitely not try to emulate it. A customer who expects protection from his bad decisions will make more of them. If that type of customer stays away, all the better. I hope they do. Profit does not come just from numbers: you need quality people.
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markr
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Post by markr on Aug 15, 2014 10:15:04 GMT
Don't worry tb (oh, 'eck, that's an unfortunate abbreviation for a badger), the idea seems to have been quietly dropped. I'm not averse to a provision fund, I'm a lender on RS and Zopa, but the proposed implementation by ReBS was, frankly, terrible.
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