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Post by meledor on Sept 24, 2016 8:48:21 GMT
It scares off new lenders and SS can no longer fund new loans. Result is that they would slowly go out of business. ..and as locutus says watching the platform shrink, or closing down the platform and enjoying a prosperous retirement. I don't know which option they would take. As I look around at other platforms I often see complaints about the level of defaults and losses experienced. Why do you think SS would shrink when these other platforms have not?
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littleoldlady
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Post by littleoldlady on Sept 24, 2016 16:58:28 GMT
..and as locutus says watching the platform shrink, or closing down the platform and enjoying a prosperous retirement. I don't know which option they would take. As I look around at other platforms I often see complaints about the level of defaults and losses experienced. Why do you think SS would shrink when these other platforms have not? It is simply the relatively large size of the larger SS loans compared to the total portfolio. A total or near total loss on any of the 16 or so loans bigger than the PF would wipe it out, if paid out.
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Post by GSV3MIaC on Sept 24, 2016 20:32:55 GMT
/mod hat off
I can't think of a similar platform with a 'discretionary' PF, which is suffering visible defaults (or losses). Over on MT,AC, ABL, FC, LC , ReBS etc it is pretty clear from the get-go that any loss is your loss. On SS, the waters are muddied by the PF, which some folks seem to rely on more than others. Then I can't think of too many places you can pick up a loan which has '-90 days to run' but still seems to be paying monthly interest. 8>.
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Post by meledor on Sept 25, 2016 9:02:05 GMT
As I look around at other platforms I often see complaints about the level of defaults and losses experienced. Why do you think SS would shrink when these other platforms have not? It is simply the relatively large size of the larger SS loans compared to the total portfolio. A total or near total loss on any of the 16 or so loans bigger than the PF would wipe it out, if paid out. The PF is not really a big deal in the scheme of things. We sacrifice some of our return for the benefit of possibly getting something back if we happen to be in a loan than suffers loss. Your original point was that "there is the risk of platform failure if a very large loan goes bad" which I understand is on the basis that it would cause a loss of confidence. With or without the PF (and as I said there are other platforms that regularly experience defaults - and do not have provision funds, Thin Cats for example - and continue to grow) I am yet to be convinced why "in the event of a large (>£1m) loss" the platform would "shrink". The point is surely that the anticipated long-term return is less than 12% because people build in some element of expected loss.
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littleoldlady
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Post by littleoldlady on Sept 25, 2016 11:08:20 GMT
It is simply the relatively large size of the larger SS loans compared to the total portfolio. A total or near total loss on any of the 16 or so loans bigger than the PF would wipe it out, if paid out. The PF is not really a big deal in the scheme of things. We sacrifice some of our return for the benefit of possibly getting something back if we happen to be in a loan than suffers loss. Your original point was that "there is the risk of platform failure if a very large loan goes bad" which I understand is on the basis that it would cause a loss of confidence. With or without the PF (and as I said there are other platforms that regularly experience defaults - and do not have provision funds, Thin Cats for example - and continue to grow) I am yet to be convinced why "in the event of a large (>£1m) loss" the platform would "shrink". The point is surely that the anticipated long-term return is less than 12% because people build in some element of expected loss. Well let's hope that we never find out.
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mikes1531
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Post by mikes1531 on Sept 25, 2016 19:08:34 GMT
... I am yet to be convinced why "in the event of a large (>£1m) loss" the platform would "shrink". The point is surely that the anticipated long-term return is less than 12% because people build in some element of expected loss. I do wonder whether all SS investors actually do build in some expected loss. (TC investors will be aware that they have no PF, and should expect they'll sustain some losses.) With a platform like SS, which does have a PF, some may expect the PF to absorb any losses. If, in the event, the PF doesn't cover the whole loss, then I'd expect there to be some people surprised/disappointed and leave. Whether any exodus would be enough to threaten the platform is an unknown. That's why the handling of PBL020 could be critical to SS. If the PF covers capital and interest, I'd expect more investors to arrive in droves. If the PF pays out nothing, I'd expect investors to leave in droves. SS have to find a position in the middle ground between those extremes that they can live with in the long term, because I don't expect their investors to be too happy if they were to do what they've done occasionally in the past and be inconsistent/unpredictable. (I know the PF is discretionary and SS is entitled to use the PF to fully cover one loan and not cover at all another loan, but such inconsistency would tend to make their investors assume the worst outcome and not ascribe much value to the PF, which probably isn't what SS would like them to do.)
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jcb208
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Post by jcb208 on Sept 25, 2016 19:15:59 GMT
I don't know why but I thought the PF would cover 2% of any loan, there is no where near enough funds to cover all the outstanding loans
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littleoldlady
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Post by littleoldlady on Sept 25, 2016 19:18:37 GMT
I don't know why but I thought the PF would cover 2% of any loan, there is no where near enough funds to cover all the outstanding loans You have misremembered or misunderstood. The PF is supposed to be 2% of outstanding loans but there is no limit to how much of one loan it might repay - except that any payout at all is at SS's discretion.
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cooling_dude
Bye Bye's for the PPI
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Post by cooling_dude on Sept 25, 2016 19:31:28 GMT
Just my 2 pennies worth, but I simply don't think there should be a PF at all. It masks the risks involved with P2P (especially true when the platform doesn't let the investors know how it will be used!). When I invest I completely ignore the fact there is a PF, because if I don't I know I will become complacent ( it doesn't matter if it defaults; the PF will cover it...). I can't see the PF going anywhere (unless the FCA have their say), ; it's a great marketing tool for SS. "No investors has ever lost a penny" will be a selling point SS will want to keep as long as possible. However, as soon as the PF can't be used to cover any losses (i.e. investors do lose money), I can see the PF becoming redundant, as SS will have no point in it being there. JMO  |
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mikes1531
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Post by mikes1531 on Sept 25, 2016 20:26:21 GMT
Just my 2 pennies worth, but I simply don't think there should be a PF at all. It masks the risks involved with P2P (especially true when the platform doesn't let the investors know how it will be used!). When I invest I completely ignore the fact there is a PF, because if I don't I know I will become complacent ( it doesn't matter if it defaults; the PF will cover it...). I can't see the PF going anywhere (unless the FCA have their say), ; it's a great marketing tool for SS. "No investors has ever lost a penny" will be a selling point SS will want to keep as long as possible. However, as soon as the PF can't be used to cover any losses (i.e. investors do lose money), I can see the PF becoming redundant, as SS will have no point in it being there. I can see a benefit to SS of having the PF, even if they were to lose the ability to continue to say "No investor has ever lost a penny". If it is used to keep losses down, then they still can quote default rates that are low, and tolerable to their investors. (FS has no PF, but they do publish their track record, and as long as the losses stay low, IMHO their investors won't be too worried.) I suspect investors would be happier with a number of small losses than with one big one, even if the net effect is the same. Seeing a big loss occur will spook some investors -- even if they're not affected, they'll still think "It could be me next time." That's why so much is at stake for SS with PBL020. The PF use has to be consistent. If it's unsustainably generous with PBL020, SS will be fine until the time the PF isn't as generous, and IMHO that really would unsettle their investors. If they start off at a support level they can maintain, if it's not full cover then investors will be a bit unsettled, but if they could continue at that level of support their investors could deal with that better than they can with unpredictable coverage.
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cooling_dude
Bye Bye's for the PPI
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Post by cooling_dude on Sept 25, 2016 20:56:44 GMT
Just my 2 pennies worth, but I simply don't think there should be a PF at all. It masks the risks involved with P2P (especially true when the platform doesn't let the investors know how it will be used!). When I invest I completely ignore the fact there is a PF, because if I don't I know I will become complacent ( it doesn't matter if it defaults; the PF will cover it...). I can't see the PF going anywhere (unless the FCA have their say), ; it's a great marketing tool for SS. "No investors has ever lost a penny" will be a selling point SS will want to keep as long as possible. However, as soon as the PF can't be used to cover any losses (i.e. investors do lose money), I can see the PF becoming redundant, as SS will have no point in it being there. I can see a benefit to SS of having the PF, even if they were to lose the ability to continue to say "No investor has ever lost a penny". If it is used to keep losses down, then they still can quote default rates that are low, and tolerable to their investors. (FS has no PF, but they do publish their track record, and as long as the losses stay low, IMHO their investors won't be too worried.) I suspect investors would be happier with a number of small losses than with one big one, even if the net effect is the same. Seeing a big loss occur will spook some investors -- even if they're not affected, they'll still think "It could be me next time." That's why so much is at stake for SS with PBL020. The PF use has to be consistent. If it's unsustainably generous with PBL020, SS will be fine until the time the PF isn't as generous, and IMHO that really would unsettle their investors. If they start off at a support level they can maintain, if it's not full cover then investors will be a bit unsettled, but if they could continue at that level of support their investors could deal with that better than they can with unpredictable coverage. When I did business studies at college (I know, I know; don't bite my head off!) one of the courses was marketing, and it was noted that potential customers take little notice of a list stats, and are more persuaded by a short simple line that sums up the positives (while ignoring the negatives!) - i.e. No Investor has lost any money or 100% recovery of defaulted loans. Something that sticks in the back of the mind; when the customer later thinks "whys is XYZ" any good, that short simple line is what comes to mind. Actually, something I remember is that 100% positive statistics were not considered to be good marketing material, as customers instinctively view them as suspicious.
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littleoldlady
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Post by littleoldlady on Sept 25, 2016 21:47:01 GMT
I wonder if a better way would be for SS to hold 2% of the loan, thus having some skin in the game, but with them taking the first 2% of any loss. That way it let's investors know where they stand and is not discretionary. Or just don't have PF and increase interest rates accordingly. Over on MT on some loans (the Broadoak ones) the platform's associates have 5% skin in the game. This gives me confidence in their DD.
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ablender
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Post by ablender on Sept 26, 2016 7:07:51 GMT
Re sustainability of PF: (a question asked while balancing on one toe?)
If the PF is calculated at 2% of loan book, will it be sustainable if it had to support, let us say up to 5%-15% of loan value for any defaults?
I am reasoning that we are not going to have all loans in the book defaulting and therefor the healthy loans support the defaulting ones.
I would appreciate comments on this.
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Post by martin44 on Sept 26, 2016 7:34:24 GMT
Just my 2 pennies worth, but I simply don't think there should be a PF at all. It masks the risks involved with P2P (especially true when the platform doesn't let the investors know how it will be used!). When I invest I completely ignore the fact there is a PF, because if I don't I know I will become complacent ( it doesn't matter if it defaults; the PF will cover it...). I can't see the PF going anywhere (unless the FCA have their say), ; it's a great marketing tool for SS. "No investors has ever lost a penny" will be a selling point SS will want to keep as long as possible. However, as soon as the PF can't be used to cover any losses (i.e. investors do lose money), I can see the PF becoming redundant, as SS will have no point in it being there. JMO I'm in favor of the PF, but i do think it creates a false sense of security, however i would be even happier if the PF was not held at 2% of loan book but allowed to grow, with 2% of all loans going into the PF and not being taken out when the loan pays (which is what i assume happens) over time the PF would then be well able to cope with multiple defaults. Out of curiosity, i wonder what the PF balance would be today, had this been the case.
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jonah
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Post by jonah on Sept 26, 2016 8:01:09 GMT
About £3.8m
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