merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Mar 26, 2014 6:13:06 GMT
I guess most borrowers and lenders are aware of the various cycles that FC in particular have gone through since its formation a few years back. Now it looks like we have entered a new one with much discussion about liquidity and the difficulty of unloading loans through the secondary market. I must admit that this worries me a lot as if it becomes increasingly difficult to unload loans above MBR even at a discount, it might just trigger a monstrous selling panic. The psychology of this type of thing is well known but not well understood and for a parallel you only have to hark back to what happened to Northern Rock when it got into difficulty. Then people were queuing for hours outside the banks branches to get their money out despite the government stating no one would lose money. If this sort of thing happened with FC who would bail them out of trouble? Not the government I fear.
I cannot remember there being so many apparently good loans for sale on the secondary market which just are not shifting. What do you think it would take to unblock this situation and avoid a crash?
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Post by bracknellboy on Mar 26, 2014 6:55:28 GMT
...Then people were queuing for hours outside the banks branches to get their money out despite the government stating no one would lose money. If this sort of thing happened with FC who would bail them out of trouble? Not the government I fear.
A rush to sell of itself has zero impact on FC: the parallels are not the same. Unlike withdrawl from a bank, FC is only a broker in this regard. Nobody is withdrawing money from it by selling. What it woujld impact for a while is its source of new upfront fees as it failed to fund new loans due to new money not being put in.
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Post by batchoy on Mar 26, 2014 7:42:11 GMT
One thing the current FC situation does do is illustrate the fallacy of the FCA idea of seeing the secondary market as a route for new investors exercise their right to cancel at no cost.
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Mar 26, 2014 9:31:54 GMT
...Then people were queuing for hours outside the banks branches to get their money out despite the government stating no one would lose money. If this sort of thing happened with FC who would bail them out of trouble? Not the government I fear.
A rush to sell of itself has zero impact on FC: the parallels are not the same. Unlike withdrawl from a bank, FC is only a broker in this regard. Nobody is withdrawing money from it by selling. What it woujld impact for a while is its source of new upfront fees as it failed to fund new loans due to new money not being put in. I agree no immediate or obvious impact on FC but inevitably if there was a seizure in the secondary market new business must also be adversely affected, then FC would hurt. The real losers must inevitably be us the lenders if we need to sell early and quickly.
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markr
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Post by markr on Mar 26, 2014 10:56:59 GMT
As you have said yourself, it's cyclic. As long as there is lender cash available, the climbing rates will attract lenders and deter borrowers until balance is restored. Arguably, there's already been a monstrous selling panic, that's why the secondary market is so gummed up, and it hasn't affected FC one iota because, unlike a run on the bank, FC don't have to give you the money if they can't liquidate it from the loans (and unlike fractional-reserve banking FC only lend out each deposit once, but that's another story).
More worrying perhaps, is that maybe P2x lending overall is running out of lenders funds. The P2x sector has grown massively in just a few years by soaking up people's money and locking it away for up to 5 years (even with an AM, *someone's* money is tied up in the loan). It can only continue to grow at recent rates by attracting new money, relending returned capital and interest alone is nowhere near enough. Maybe all the sophisticated investors who were receptive to P2x have run out of money, maybe all those bonds from better times have matured now and the influx of money has dried up.
Hopefully, regulation and P2P NISAs will eventually attract more money and get the secondary market moving again.
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oldgrumpy
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Post by oldgrumpy on Mar 26, 2014 11:07:27 GMT
Oh dear! I took one look at the thread title, and (momentarily) thought that FC were launching a Boris loan to increase his rolling stock! I need another breakfast.  |
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Post by parag on Mar 26, 2014 12:45:19 GMT
I was told last year that FC make the majority of their money from secondary market sales and not loan origination fees.
The person who told me this was a small shareholder in FC who was involved in, via his day job, creating the automated link between FC's backend systems and their bank account.
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markr
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Post by markr on Mar 26, 2014 13:54:18 GMT
I was told last year that FC make the majority of their money from secondary market sales and not loan origination fees. I can't see how that works out from the figures on FC's website. Since inception, they've originated nearly £250m of loans, on which the borrowers have been charged at least 2%, and they've sold £52m of loan parts, on which sellers have been charged 0.25%. Am I missing something?
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Post by parag on Mar 26, 2014 14:33:21 GMT
Sorry, thinking about it it was almost 2 years ago now!
I guess their arrangement fees are eaten into by broker referral fees which are upto 1.5% of the loan value. At the time I had no reason not to believe what he told me and I also had no reason to look into it further. Also at the time their funds lent figure was a lot lower!
Just though his comments may be relevant to this thread.
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markr
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Post by markr on Mar 26, 2014 14:50:06 GMT
I can imagine it being true 2 years ago, when some of the borrower fees were used to pay cashback, and a huge chunk of every loan would be churned by the flippers to milk the cashback cow. Oh, happy days.
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blender
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Post by blender on Mar 26, 2014 15:28:26 GMT
Sorry but it has never been true that fees for loan part sales have been a significant part of FC revenue. Even if the whole loan was churned FC would only gain 0.25% of the loan value, or less than a tenth of the borrower fee. The income from loan part sales becomes more significant as the loan book grows and there are more parts to trade, but it is still trivial. So far since starting they have received £132k from trades, but with a £100M ish loan book they receive £1M per annum just from the 1% lender fee. Borrower fees must be a few £million pa.
The loan part sale fee is just a nominal amount, probably to provide a small disincentive to trade for a penny.
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Post by parag on Mar 26, 2014 15:36:14 GMT
Hi. I found this a little hard to believe but as i said I had no reason to doubt him at the time.
After your comments it may seem that what he stated may not be entirely true!
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Mar 26, 2014 18:38:43 GMT
I cannot remember there being so many apparently good loans for sale on the secondary market which just are not shifting. What do you think it would take to unblock this situation and avoid a crash?
The above is the question I originally posed.
I have a number of concerns for which there are no obvious answers/remedies. My major concern is that lenders in speculative fields, like the FC one is, are renowned for their fickle nature. So if prospective or existing borrowers find that they can only sell on the secondary market at a discount, or worse still not at all (lack of buyers) they almost certainly will not be buying into new loans even if they appear to be a bargain. Now we currently have a secondary market where loans are becoming increasingly difficult to move and prices obtained on the primary market are high, which must indicate a lack of buyers. So what next?
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ton27
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Post by ton27 on Mar 26, 2014 18:51:27 GMT
I have raised a similar point recently and am still wondering if the P2P/P2B market is stalling - other platforms I invest in are also sufferring.
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oldgrumpy
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Post by oldgrumpy on Mar 26, 2014 19:33:45 GMT
If it is stalling. FC seem to be on a maxi-roll, with 115 loans listed at this moment. I hope they are informing borrowers that most will get nothing like the minimum rate which small loans achieve. Nine loans unfilled yet with <2 days to go. I wonder whether a lot of cash is going into ISAs before the deadline. I'd rather pay tax on 12% than get a tax free 3%!! Looking at an income ISA though. Any recommendations?
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