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Post by Financial Thing on May 11, 2016 12:49:02 GMT
Just goes to show how a poor decision by management can tumble a company or at the very least, send it into turmoil. Hence the reason I never buy single stocks.
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pip
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Post by pip on May 11, 2016 15:58:24 GMT
My concern is that the P2P model seems to have for many platforms (Wellesley, Ratesetter, Zopa, etc) dislocated from the idea of:
Lender A wanting to lend £10 for 5 years at 6% and borrower B wanting to borrow £10 at 6.5% for 5 years with the difference taken in fees to the platform
to
Lender A wanting to lend £10 for a month at 3%, borrower B wanting to borrow £10 at 6.5% for 5 years, with Lender A rolling over to lender C at the end of the month, lender d month after, etc until either a) the loan is repaid or b) there is no liquidity to roll over a lender at month end in which case the current lender retains the loan until either there is sufficient liquidity or the loan is repaid. The difference between the 6.5% interest the borrower pays and the 3% lender receives is the fee to the platform.
For me the rolling over of loans both creates a massive liquidity risk for these platforms and also allows the platforms to hugely increase their fees, as the interest rate between what the borrower pays and the lender receives is large and I can only assume this difference is swallowed by the platform. In short it underplays the risk to the lender and increases platform risk.
I also think there is a huge complexity in how these platforms actually work. On the surface they are simple, but under the surface there is all sorts going on with very little disclosure.
Now no idea if this is actually happening but there is surely a risk of:
- Platforms lending out its customers money to related parties at discounted rates
- Platforms lending out its customers money to itself
- Platforms lending it's own money to the provision fund to overstate the level of protection (if the money can be recalled)
- Platforms repaying high yielding contracts before maturity, refinancing at lower rate contracts available and pocketing the difference.
Who knows if these things are happening, on these platforms you really have no idea who you are lending to.
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Post by MoneyThing on May 11, 2016 16:25:53 GMT
Investment banks and institutions are the death touch to most things good in the finance world. Unfortunately businesses gobble up offers of institution money due to the desire for rapid growth and expansion (and greed). Hopefully there are a few smaller p2p companies that don't desire to become a behemoth operation ( MoneyThing ) and keep institutional money out and operations manageable. I guess since you tagged me you were looking for a comment!  Whilst I can't promise we will remain a 'boutique' operation forever, I can say that whilst I remain in a position of control then we will always look to prioritise things for the retail lenders. Regards, Ed. IN EDIT: Feels odd being this side of the forum so heading back to the MT threads now...
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Post by uncletone on May 13, 2016 8:16:42 GMT
Good grief! Young Ed's found a way out! Somebody keep him busy, quick!
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james
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Post by james on May 13, 2016 17:36:16 GMT
Lending Club is a listed company and it appears that certain profits may have been mis-stated to markets by moving them to an earlier reporting quarter than the one they belonged in. I don't know whether the CEO had a bonus structure or share ownership that would have benefited as a result. I think we may see more on this. Well, the FT says more at Fintech newbies pick up some bad old habits ( direct link) about why it was really done: " someone at Lending Club changed the dates on loans that were being sold to investment bank Jefferies, which wanted to package them up and sell them. FT Alphaville has highlighted that it seems the date change was meant to make it look like the loans were originated after the company had changed its borrower agreement at Jefferies’ request. Without the tweak, the bank did not want the loans. So Lending Club has had to buy them back.
It all sounds a bit technical but it appears to be an out and out fraud of a very familiar sort. A big part of the 2008 financial crisis stemmed from the bundling together of subprime loans that were backed by faulty documents and did not meet investors’ criteria.
At Lending Club, the incident led the board, which includes John Mack, formerly of Morgan Stanley, and Larry Summers, former Treasury secretary, — to order a review. This uncovered a second allegation, that Mr Laplanche had failed to disclose a personal stake in Cirrix Capital while Lending Club was contemplating an investment in it. Reckoning that two problems were too many, Lending Club and Mr Laplanche parted ways." The closest I've been involved in to that loan details change in Europe was FCA regulated Bondora announcing it was extending lending to young professionals under 25 but which then proceeded to lend to people under 25 some of whom didn't even finish high school, and to date of those I've looked at none appears to actually be a young professional, though I've seen a couple who might be. This is one of the reasons why I stopped doing new lending at Bondora: I took the view that I could not trust them to actually be selling to me what they said they were selling to me. On the negatives for Lending Club, San Francisco Business Times reports: " Banc Alliance, a group of 200 small banks, has suspended purchasing loans from troubled fintech Lending Club ... The move is just one more sign that Lending Club is in very deep and significantly troubled water: Just days ago, large banks Goldman Sachs (NYSE: GS) and Jefferies (NYSE: JEF) said they were pulling out of deals they had with the fintech. That's sure to hit its bottom line very hard, because working with banks is a main source of liquidity for Lending Club." On the regulatory side FT Alphaville blogger Kadhim Shubber wrote in Some Lending Club news you might have missed because you were watching its shares crash and burn: " Ronald Bethune of New York filed suit last month alleging that the online lender’s relationship with WebBank — where Lending Club loans are originated by the Utah-based bank and then sold through Lending Club to investors — was a sham designed merely to avoid state interest rate caps
The argument Lending Club is making is that Bethune has no right to file a class action lawsuit because when he took the loan, he agreed that any disputes would be worked out between him and the company in arbitration, rather than in a court. Basically, he gave away his right to sue when he took the loan ...Lending Club’s argument is pretty badly timed, politically speaking. Last week, the Consumer Financial Protection Bureau revealed plans to basically the end the use of arbitration clauses in consumer credit" And quoted the New York Times: " the move by the Consumer Financial Protection Bureau — the biggest that the agency has made since its inception in 2010 — will unravel a set of audacious legal maneuvers by corporate America that has prevented customers from using the court system to challenge potentially deceitful banking practices.
Honing their plan over decades, credit card companies, banks and other lenders devised a way to use the fine print of their contracts to push consumers out of court and into arbitration, where borrowers must battle powerful companies on their own. Without the ability to pool resources, most people abandon their claims and never make it to arbitration" Before moving on to suggest the really bad possibility: " a financial services policy analyst at Guggenheim Partners, reckons that Lending Club’s push for arbitration could end up backfiring by becoming a rallying point for opponents of such practices" Lending Club as a poster child for bad P2P practices? Oh dear. And this is a firm that has Larry Summers, former Treasury secretary, on its board. Three senior employees were fired or resigned at the same time as their CEO and if this continues they may well not end up being the last, with such esteemed board members undoubtedly keen to ensure that everything is unimpeachably correct.
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registerme
Member of DD Central
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Post by registerme on May 13, 2016 17:46:28 GMT
Note james , I don't "like" your post, but I did find it very interesting reading. Thank you for putting it together . |
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jo
Member of DD Central
dead
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Post by jo on May 13, 2016 17:52:58 GMT
with such esteemed board members undoubtedly keen to ensure that everything is unimpeachably correct. Mack & Summers.....are they kidding?
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Post by westonkevRS on May 13, 2016 19:57:52 GMT
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james
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Post by james on May 13, 2016 21:45:33 GMT
I think that Rhydian did a good job. Note sure it was wise to say that "it's funded 95% by normal people", when 95% by individuals would have worked better. I don't know it but I assume that a fair chunk of that is HNW, UHNW money given that the mean investment from 38,986 lenders is given as £21,287. A pretty big part of the UK population wouldn't consider either those groups to be normal people. I assume that much of the rest is coming from the mass affluent ($100k+ investable assets), which is in some ways a proxy for "not horribly unprepared for retirement" or an alternative proxy of "aged 40+". Of course a fair chunk of the population wouldn't regard mas affluent as normal people either. Good to see the light jacket to make him look less like a banker but maybe he should also go for a lightly coloured shirt instead of white as well to reinforce that "I'm not a banker" look? Note james , I don't "like" your post, but I did find it very interesting reading. Thank you for putting it together . Note sure I like it either, but seemed worthwhile to track the evolution of the pain. |
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Post by wiseclerk on May 16, 2016 21:29:09 GMT
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Post by ablrateandy on May 16, 2016 21:44:03 GMT
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Post by p2plender on May 16, 2016 22:46:31 GMT
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registerme
Member of DD Central
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Post by registerme on May 24, 2016 10:36:47 GMT
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Post by wiseclerk on May 27, 2016 8:55:35 GMT
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james
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Post by james on May 27, 2016 9:39:20 GMT
For those without a Wall Street Journal account the story can be found at LendingClub Fund Falters. Going via Google like that can be particularly useful for newspaper sites which choose to display full story versions that way. The Financial Times is another where it's helpful. In summary Lending Club operates a lending fund called Broad Based Consumer Credit (Q) Fund that has invested in more five year loans than in its documented investment policy since 2013 but the Lending Club board hadn't been told about this, while the fund customers were told of the loan mix. The LC Advisers group operates this and five other funds as well as some separately managed accounts worth a total of $1.35 billion of Lending Club loans. Not mentioned in the story is of course that it is interesting that a platform is operating a fund that appears to compete directly with its lending customers and which can be expected to cause lower lending rates via higher lending demand even if it has no insider information or access to use to help with its lending. |
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Whilst I can't promise we will remain a 'boutique' operation forever, I can say that whilst I remain in a position of control then we will always look to prioritise things for the retail lenders. Regards, Ed.
