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Post by meledor on Apr 4, 2016 12:10:53 GMT
Agricultural land has been a very good investment in recent years.
www.knightfrank.co.uk/residential/country-houses/rural-investments
Someone suggested earlier that with RS you do not know anything about the borrower. Is this correct? If so arguably you are taking a black/red gamble on the credit scoring model used by RS. In other words if it is not proper P2P then the lack of information makes it a gamble to use your terminology.
the attraction of RS is its provision fund, nothing else. no provision fund, no business. simples. as far as I am aware RS is true P2P in that you lend your money directly to the borrower (you just dont know who they are)
SS has a provision fund. Admittedly it is only 2% of the loan book whereas for RS according to the website it is 15%. But that website suggests most RS lending is unsecured, whereas all SS is secured. Which means even with a very conservative estimate of recovery in a default SS would provide more cover than RS.
Incidentally I am not a great fan of provision funds as they will reduce returns for anyone who can evaluate loan risk better than average.
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Liz
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SS vs RS
Apr 4, 2016 12:13:45 GMT
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Post by Liz on Apr 4, 2016 12:13:45 GMT
Agricultural land has been a very good investment in recent years.
www.knightfrank.co.uk/residential/country-houses/rural-investments
Someone suggested earlier that with RS you do not know anything about the borrower. Is this correct? If so arguably you are taking a black/red gamble on the credit scoring model used by RS. In other words if it is not proper P2P then the lack of information makes it a gamble to use your terminology.
the attraction of RS is its provision fund, nothing else. no provision fund, no business. simples. as far as I am aware RS is true P2P in that you lend your money directly to the borrower (you just dont know who they are) Doesn't take much of an increase in defaults for the provision fund to look shakey. When I first invested in RS the cover ratio was 2.2, now it's only 1.3.
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Post by mrclondon on Apr 4, 2016 12:24:13 GMT
Take the largest loan on SS, assume the security will realise 50% of the stated value. Does the provision fund cover the shortfall ? If it does, could it cover the largest 2 loans on a similar basis ?
EDIT: Here is a worked example, as clearly my first attempt was not understood, and attracted a post (since deleted) contradicting me ...
The largest loan is £6.1m, if 50% of asset value realisation occurred, there would be a shortfall of £1.76m which would wipe out over half the provision fund.
The second largest loan is similar sized, and if 50% of asset value realisation occurred the shortfall would be greater than the remaining provision fund.
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Post by lb on Apr 4, 2016 12:31:31 GMT
the attraction of RS is its provision fund, nothing else. no provision fund, no business. simples. as far as I am aware RS is true P2P in that you lend your money directly to the borrower (you just dont know who they are) Doesn't take much of an increase in defaults for the provision fund to look shakey. When I first invested in RS the cover ratio was 2.2, now it's only 1.3. Agreed This is partly down to a change in the way they calculate it (not just increase in bad debt) but I agree nonetheless ...
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brin
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Post by brin on Apr 4, 2016 12:38:38 GMT
Take the largest loan on SS, assume the security will realise 50% of the stated value. Does the provision fund cover the shortfall ? If it does, could it cover the largest 2 loans on a similar basis ? Mmmm... Provision fund looks decidedly wobbly with your scenario.. lets hope it doesn't happen.
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Post by mrclondon on Apr 4, 2016 12:46:26 GMT
Take the largest loan on SS, assume the security will realise 50% of the stated value. Does the provision fund cover the shortfall ? If it does, could it cover the largest 2 loans on a similar basis ? Mmmm... Provision fund looks decidedly wobbly with your scenario.. lets hope it doesn't happen.
Those lenders involved with the AC Leeds Office block will be aware that the bank that preceded AC wrote off over half of the previous loan, as the value of the security had collapsed. Commercial property values can, and do fall by 50% or more from peak to trough of a recession.
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brin
I am trying to stay calm.
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Post by brin on Apr 4, 2016 12:52:50 GMT
Mmmm... Provision fund looks decidedly wobbly with your scenario.. lets hope it doesn't happen.
Those lenders involved with the AC Leeds Office block will be aware that the bank that preceded AC wrote off over half of the previous loan, as the value of the security had collapsed. Commercial property values can, and do fall by 50% or more from peak to trough of a recession.
it's decidedly unsettling to think that a property may only realize 50%, sort of makes the SS provision fund provide a false sense of security. (apologies for first post i misunderstood, did not mean to contradict)
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Post by lb on Apr 4, 2016 13:01:21 GMT
Those lenders involved with the AC Leeds Office block will be aware that the bank that preceded AC wrote off over half of the previous loan, as the value of the security had collapsed. Commercial property values can, and do fall by 50% or more from peak to trough of a recession.
it's decidedly unsettling to think that a property may only realize 50%, sort of makes the SS provision fund provide a false sense of security. (apologies for first post i misunderstood, did not mean to contradict) if property prices sink 50% on a wide scale then your P2P investments will probably the last thing on your mind checking if your bank's doors are still open (and how you get your <£75k) would probably be higher up the list - as they'd all, without doubt, be broke the property market is bigger than any bank and most certainly too big to fail so will be given all the support it needs until the fat lady sings
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Liz
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SS vs RS
Apr 4, 2016 13:07:43 GMT
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Post by Liz on Apr 4, 2016 13:07:43 GMT
Take the largest loan on SS, assume the security will realise 50% of the stated value. Does the provision fund cover the shortfall ? If it does, could it cover the largest 2 loans on a similar basis ?
EDIT: Here is a worked example, as clearly my first attempt was not understood, and attracted a post (since deleted) contradicting me ...
The largest loan is £6.1m, if 50% of asset value realisation occurred, there would be a shortfall of £1.76m which would wipe out over half the provision fund.
The second largest loan is similar sized, and if 50% of asset value realisation occurred the shortfall would be greater than the remaining provision fund. Someone did some analysis on this somewhere, let's see if I can find it. Edit: found it and bumped it.
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registerme
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Post by registerme on Apr 4, 2016 13:08:31 GMT
Something else that should be remembered when talking about / thinking about provision funds is that they are not guaranteed insurance schemes. Employment of provision funds is at the discretion of the trustees / directors of the fund. ASFAIK this applies to all provision funds, so should not be taken as a comment about SS specifically.
Were I a trustee of any such provision fund I would be very reluctant to see it wiped out in the support of just one loan that may have gone bad. This implies that, were a loan to go bad, and were there to be a shortfall of capital returned after recovery and sale of the security, that the provision fund may not (indeed should not) bail out the remainder 100%.
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ablender
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Post by ablender on Apr 4, 2016 13:18:16 GMT
Take the largest loan on SS, assume the security will realise 50% of the stated value. Does the provision fund cover the shortfall ? If it does, could it cover the largest 2 loans on a similar basis ?
EDIT: Here is a worked example, as clearly my first attempt was not understood, and attracted a post (since deleted) contradicting me ...
The largest loan is £6.1m, if 50% of asset value realisation occurred, there would be a shortfall of £1.76m which would wipe out over half the provision fund.
The second largest loan is similar sized, and if 50% of asset value realisation occurred the shortfall would be greater than the remaining provision fund. If I carried the instructions above well, there are only 2 loans which can potentially stress, but not exhaust the provision fund on SS, namely, PBL087 and DFL 001, requiring 89.31% and 87.76% of the PF respectively.
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Liz
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SS vs RS
Apr 4, 2016 13:18:28 GMT
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Post by Liz on Apr 4, 2016 13:18:28 GMT
Something else that should be remembered when talking about / thinking about provision funds is that they are not guaranteed insurance schemes. Employment of provision funds is at the discretion of the trustees / directors of the fund. ASFAIK this applies to all provision funds, so should not be taken as a comment about SS specifically. Were I a trustee of any such provision fund I would be very reluctant to see it wiped out in the support of just one loan that may have gone bad. This implies that, were a loan to go bad, and were there to be a shortfall of capital returned after recovery and sale of the security, that the provision fund may not (indeed should not) bail out the remainder 100%. Indeed. Also would SS top-up the provision fund, if say 25% was removed to pay a shortfall? They do say they will maintain it at 2%, and they do take out of it when the loan portfolio falls ie when a loan repays.
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Post by chris on Apr 4, 2016 13:18:31 GMT
Something else that should be remembered when talking about / thinking about provision funds is that they are not guaranteed insurance schemes. Employment of provision funds is at the discretion of the trustees / directors of the fund. ASFAIK this applies to all provision funds, so should not be taken as a comment about SS specifically. Were I a trustee of any such provision fund I would be very reluctant to see it wiped out in the support of just one loan that may have gone bad. This implies that, were a loan to go bad, and were there to be a shortfall of capital returned after recovery and sale of the security, that the provision fund may not (indeed should not) bail out the remainder 100%. I think RS either have or are planning to change to a non-discretionary provision fund. Happy to be corrected but I seem to remember them mentioning that when the storm kicked off about them investing the PF in their own loans.
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registerme
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Post by registerme on Apr 4, 2016 13:21:55 GMT
Something else that should be remembered when talking about / thinking about provision funds is that they are not guaranteed insurance schemes. Employment of provision funds is at the discretion of the trustees / directors of the fund. ASFAIK this applies to all provision funds, so should not be taken as a comment about SS specifically. Were I a trustee of any such provision fund I would be very reluctant to see it wiped out in the support of just one loan that may have gone bad. This implies that, were a loan to go bad, and were there to be a shortfall of capital returned after recovery and sale of the security, that the provision fund may not (indeed should not) bail out the remainder 100%. I think RS either have or are planning to change to a non-discretionary provision fund. Happy to be corrected but I seem to remember them mentioning that when the storm kicked off about them investing the PF in their own loans. Fair comment chris, as ever the devil is in the detail .
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ilmoro
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Post by ilmoro on Apr 4, 2016 13:25:39 GMT
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