The Final Straw

Baring some form of stratospheric rise in deal flow I think the MLIA is dead to anyone who is looking to invest more than £100 in any given loan. This is truly sad given that it is the people who put significant dosh into AC in the early days that are now effectively being shown the door.

I think the GEIA and GBBA will be following shortly, which just leaves people who are happy to invest in the shorter markets. I have a few hundred in the QAA waiting for some juicy morsel to invest in, but I can't believe that there are people effectively using it as a savings account. Who in their right mind would put £100k into an account that has no guarantees and (as far as I am aware) virtually no visibility of what is happening with the £23M. Does anyone know how much is held in cash, how much is invested in suspended loans or what the largest exposure is to any given loan? Is the QAA earning sufficient money to pay interest accruing?

A cynic might think that provided the cap is increased by 4% a year then what's happening to the underlying investments will remain hidden. Banks have to be stress tested to ensure they can weather a financial downturn, has anyone stress tested the QAA?

It's not quite that simple unfortunately.

#247 is a single BTL residential property in Liverpool. (I have not done any detailed due diligence on this loan, so my comments here are purely theoretical).   Anyone doing due diligence on this loan will have taken note of the valuation report comments on condition of the property and the listed comparables. They will have researched the local demographics. They will have investigated how long similar properties take to re-let to understand how to calculate the effect of void periods on rent, and how long similar properties take to sell.  They might conclude the chances of substantial void periods is minimal (so the chance of default is low) and the chance of needing to offer more than a token discount for a quick sale is also minimal. In which case 7% yield is fine as the risk of both default and loss on default are minimal.

Then take something like PBL 103 on SS at 70%. Its a development plot of land in Hastings with awkward geology, making development expensive in an area that due diligence might show has minimal demand for lots and lots of new expensive flats. 12% yield looks dangerously low, as the fire sale value of the plot could well be less than the loan value. i.e. the risk of both default and loss on default are high.

If these were the only two p2p loans available, I would go for the 7% on AC and ignore the 12% on SS.

(I'm in neither of these loans)

Cris thanks for reply reguarding stress testing its that professional in front of the curve management of the platform which i think most if not everybody likes about AC and keeps me on board as a very much amateur investor. Funny enough after todays earlier post from me the am seems to have perked up and i am making a bit of progress to full investment again but its clear the bigger the sums of money invested the very much worse the issues will become. A future of 250 £100 loans giving 9% would float my boat but be utterly useless to others. 

We're aiming for a constant £10-15m per month from here on in.  Aiming for and attaining are different things so I'm sure there will be wobbles along the way, and August is just around the corner, but that's the target.  We're seeing enough deals enter the pipeline to do that - our conversion rate from deal seen to drawn down is somewhere between 10 and 20% vs the 78% SS quote, but last month and this month we've had over £200m in new enquiries.  New staff have been taken on to allow us to ramp up the processing on those volumes as we have been suffering from some internal bottlenecks which caused this lumpy deal flow as people switched between finding new deals and processing existing ones.

Not all of those deals will go to retail as current demand wouldn't cover that, so we expect institutional lending volumes will increase sharply, but not before the retail platform has had its fill.  We can then try to maintain a balance between keeping retail fed with deals, growing retail demand, but not flooding the market and killing aftermarket liquidity or stretching underwriting sources too far.  Again we won't always get that balance right but with a steady flow of deals coming through the pipeline we should be more reactive in correcting lumps and bumps instead of there being a lead time of multiple weeks.

I expect that within a handful of weeks you'll be happily investing all you want into single large loans, even if liquidity remains constrained in smaller deals.

jjc - different market space. I do keep a vague eye on what they're doing and keep asking these very questions of the board and there's a large proportion of SS's loans we wouldn't touch as they're outside our lending criteria.  If there's a whole load of repayments without refinancing on site, where lenders in effect lend themselves the interest for another year, over the next couple of months with no more defaults then I'll be asking the board again whether we've made the right choices.  Time will tell whether we're right or if we've missed a trick.

different market space - yes, that is abundantly clear. AC's target market is smaller loans, and competing with the challenger banks, and the increasingly re-invigorated retail banks. SS's target market is the larger loans, whose borrowers remain poorly served by banks of any sort. In broad terms of loan size, SS's target market space starts where AC's ends. 

If you click on the "View Details" link against each loan product on www.assetzcapital.co.uk/borrow-introduce/  you'll see the max loan sizes shown in the "Terms Sheet".  Bridging finance = £2m  Dev. Finance = £3m  Commercial mortgage is £2m but £1m preferred.

www.lendyfinance.com/#loans  shows the max loan as £10m  but as we saw last week £12.36m is available if you ask nicely. If you re-combine the multiple PBL's that make up a typical borrower loan, its clear the Lendy/SS target market is £2m - £6m loans.

To be fair to AC they do say they will consider loans above the stated maximum value (and LTV), but its clear large loans are not their primary target.

In the meantime the loan origination numbers at Altfi tell their own story:

       Since launch: AC = £118m   SS = £157m

       2016: AC = £31m  SS = £78m   (SS = 2.5 x AC )   W&CO = £36m   TC = £33m

In fact in 2016, SS are the 5th biggest behind Z, RS, FC & LendInvest.

As a holder of the AC convertible notes, these numbers matter to me. Rightly or wrongly the FinTech sector is valued largely based on a multiple of loan origination since launch, with  0.1 to 1.2 being the range.  Now as an external investor attempting to value AC I would be looking at the overheads carried by AC and how that compares with loan origination, i.e. in effect return on capital employed. Then I would do the same with SS ... and its blatantly obvious they have achieved an awful lot more origination with a miniscule staff, and I would conclude that SS deserves a valuation based on higher multiple of origination than AC does.

I think SS have been incredibly smart in targeting large loans. Some SS loans undoubtedly wouldn't pass AC's tighter credit control due diligence, but any attempt to imply a majority of SS loans are substantially poorer quality than AC loans simply doesn't fly to anyone that undertakes their own detailed due diligence on loans.

Simply ramping up the loan numbers at AC whilst targeting small loans doesn't help the many lenders that want 4, 5 or 6 figure slices of loans. Its simply not worth spending multiple hours and in many cases actual money doing detailed loan due diligence for less than 4 figure sums. Like others I'm utterly mystified at AC giving me eighty something quid in the #166 replacement loan, and telling me (in effect) to withdraw the remainder from the platform, which I have of course done (to lend at SS)