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Post by martin44 on Sept 27, 2016 17:47:48 GMT
... do you know this as a fact or an assumption? i am not sure that SS do withdraw this 2% at maturity, i can only assume as i do not know, but i have a feeling this 2% is indeed withdrawn from the PF, but is that 2% sent back to SS or is this a profit for the provision company. : All we know is that the amount shown on the website as being in the PF -- it's in the middle of the 'How It Works' page -- is always 2% of the total loan book. So whenever a loan is repaid, it decreases by 2% of the repaid loan's value. I think the question of whether it goes back to SS or to the provision company is irrelevant -- it doesn't really matter because SS, Lendy, and LPRL are all part of the same 'group' and have a common ownership. (If someone gives me a fiver, I really don't care whether it goes into my left pocket or my right pocket!) Apologies in advance if i am not understanding this correctly, are SS, Lendy and LPRL 1 company or 3 separate companies, i understand that they are part of the same 'group' if 1 goes bust do they all go bust? when filing their accounts is the combined total all SS's profits or will each separate co have its own profits?
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mikes1531
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Post by mikes1531 on Sept 27, 2016 18:12:03 GMT
martin44 : All we know is that the amount shown on the website as being in the PF -- it's in the middle of the 'How It Works' page -- is always 2% of the total loan book. So whenever a loan is repaid, it decreases by 2% of the repaid loan's value. I think the question of whether it goes back to SS or to the provision company is irrelevant -- it doesn't really matter because SS, Lendy, and LPRL are all part of the same 'group' and have a common ownership. (If someone gives me a fiver, I really don't care whether it goes into my left pocket or my right pocket!) Apologies in advance if i am not understanding this correctly, are SS, Lendy and LPRL 1 company or 3 separate companies, i understand that they are part of the same 'group' if 1 goes bust do they all go bust? when filing their accounts is the combined total all SS's profits or will each separate co have its own profits? : They are three separate companies, but you'd need access to shareholder info to see exactly how they are related. They all have the same two directors. Two of them (LPRL and Saving Stream Security Holding Ltd) are so new that I don't believe they've had to file any reports/accounts yet. AIUI, SSSHL was created last year to hold the security so that if the platform collapsed the lenders/investors would still own the loans. LPRL holds the PF. And Lendy is the business, and that's who we're actually dealing with. (At the bottom of every website page, the fine print says "Saving Stream is a trading name of Lendy Ltd".)
In answer to your last question, I'd expect LPRL and SSSHL to break even and all the profits/losses to end up in the Lendy accounts. I should also add that I'm now well beyond my depth in this discussion, so if an explanation of the relationships/implications of the way the Lendy group is organised is wanted, someone else will have to provide it.
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Post by meledor on Sept 27, 2016 20:14:14 GMT
Hopefully we will see in a few days time with the 2015 accounts how profitable SS is, but a platform making a profit is still rare in P2P circles. Changing the provision fund such that the 2% stays there will increase SS's funding cost to 14% and so reduce or eliminate profits. The profitability of a platform is an important measure of its long term viability so any reduction in profit would be a concern to me.
I have to say that your sentence above in bold is completely false. The provision fund has been maintained at 2% level from SS inception and the funding cost is the same since there. SS said they would maintain it at 2% and I do not see how you could claim this not to be true....
hor1997, I cannot see how your comment relates to what I have posted and I can only think that I have not explained myself very well for which I apologise. If you re-read the thread from Savingstream's post onwards then it is in fact I who has been arguing for the status quo whereas martin44 and mike1531 are suggesting that the provision fund be changed so that the 2% contribution is not withdrawn at the maturity of the loan, with the result that the PF would increase beyond the 2% of outstanding loan book that it is now.
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beechside
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Post by beechside on Sept 27, 2016 22:43:24 GMT
it is in fact I who has been arguing for the status quo... I have to say that I couldn't agree with you more. Barring huge financial crisis (gold anyone?), platform failure is my biggest concern. The 2% may not sound much but it is SS's profit and deserves to be returned to them. They are deferring their margin and are offering to fund (some of) our potential losses. I might even be happy were there no PF since any pressure on their profitability is a concern. How about PBL124 which cost them 25k in interest or PBL131 that's cost them about 35k so far? I'm sure they have some recompense for these but their legals, surveyors fees, broker's commission and on-costs must come from somewhere. Perhaps some of our colleagues have forgotten that 12% comes with risks and a near-certain expectation of loan failure. It is absolutely not for SS to negate the risk or to fund the losses. I feel the best thing we can do is to encourage the simplest systems, support the most reliable business model for this market sector and accept the risk/reward balance from what is a new, emerging and volatile investment medium. Apologies if this sounds patronising - it's not meant to be - but you can't have your cake and eat it. There are probably safer loans around but I doubt they pay a consistent 12%.
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mikes1531
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Post by mikes1531 on Sept 28, 2016 11:51:05 GMT
it is in fact I who has been arguing for the status quo... I have to say that I couldn't agree with you more. Barring huge financial crisis (gold anyone?), platform failure is my biggest concern. It's my biggest concern too. The problem I have with the current PF is that if there's a big loss then either SS have to top up the PF as they've said they would, or their credibility gets clobbered -- and platform viability could become questionable. Funding the PF with 2% of every new loan, leaving it there, and not committing to add any more might be more expensive to SS than the PF has been so far, but at least it's predictable and can be built into their business plan. An open-ended commitment to top up the PF cannot. It's an accident waiting to happen. How about PBL125 which cost them 25k in interest or PBL131 that's cost them about 35k so far? I think I understand the comment about PBL131, but what was the problem with PBL125?
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SteveT
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Post by SteveT on Sept 28, 2016 12:01:24 GMT
The best way to ensure that doesn't happen for as long as possible is for the Directors to be exceptionally prudent about how the PF is deployed when losses arise. In particular it should never be drawn on to pay accrued interest (at most it should cover a shortfall in capital).
If, on account of it being an "old T&Cs" loan to Lendy, SS feel obliged also to cover the unpaid interest for PBL020, that element should come from Lendy itself rather than the PF, to avoid setting an unsustainable precedent for future defaults.
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arbster
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Post by arbster on Sept 28, 2016 12:24:44 GMT
Personally, and it may be an unpopular view, I don't think there should be an advertised Provision Fund at all. It gives the illusion of protection that really isn't there, which can lead to people investing more money than they can afford to lose, or to be tied up for a long time at least. I suspect it also means that people are likely to invest in a loan even if it doesn't quite meet all their criteria for due diligence, which means we lose the opportunity for "crowdsourced due diligence" to lead to a loan remaining unfunded, or at least being adjusted using cashback/bonus interest to reflect additional risk. As the provision fund is only "sort of" SS's money, there's also a risk that it could make them more complacent, as the implications of a default not covering the loan don't come directly from their own pockets. I'm sure it's far too late to change anything now, but a business decision to retain a larger cash float in Lendy Ltd (call it the marketing budget) that could at their discretion be used to cover losses would still enable them to say that "no one has ever lost money", without that setting an expectation for the future.
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Post by GSV3MIaC on Sept 28, 2016 12:54:11 GMT
/mod hat off
It's not an unpopular view with me. I'd rather have an extra 0.1% or whatever it costs them, and no PF. There is no way the PF can be expected to do what (some) people are expecting it to do, and the 'discretionary' bit just makes for more noise around the topic than we really need. Even the RS one ('non discretionary') generates way more than its fair share of posting and snipings and general worriting. Now that losses are tax deductible there is even less justification for a PF than there was before (when higher rate tax payers suffered badly from a '12% interest .. 6% losses' regime). I'd be quite happy for INPL to vanish too - let's keep prefunding, but you can only actually buy what you have cash for (now THAT is likely to be more unpopular). (i.e. if you prefund £1k and you have £900 in you account, you get allocated £900).
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beechside
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Post by beechside on Sept 28, 2016 13:06:37 GMT
I think I understand the comment about PBL131, but what was the problem with PBL125? As you probably realise from your comment, PBL131 has not drawn down yet but SS are paying interest on it. I don't doubt that the borrowers paid some up-front money for legals, surveyor etc but, they won't be paying interest on the loan yet. Despite this, SS are paying us interest. PBL125 should have read PBL124 - apologies and thanks for pointing it out (I've corrected my original to avoid confusion). This loan was cancelled before drawdown but, again, we were paid interest. SS would have had to dip into their own pocket to fund our interest. While we all enjoy interest as soon as we invest, it's a hit for SS, particularly in the cases where the loan doesn't complete. Is this sustainable? FS decided they had to follow SS's lead so perhaps this is going to be commonplace, though I wouldn't be surprised to see it disappear at some point. Then there's the paying interest before SS even receive our investment (INPL). I agree with others that interest should only be paid from the moment when SS receive funds to cover the deficit. They could then abandon the 7-day rule, which I think complicates matters and has caused several people some annoyance.
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mikes1531
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Post by mikes1531 on Sept 28, 2016 14:31:16 GMT
I think I understand the comment about PBL131... As you probably realise from your comment, PBL131 has not drawn down yet but SS are paying interest on it. I don't doubt that the borrowers paid some up-front money for legals, surveyor etc but, they won't be paying interest on the loan yet. Despite this, SS are paying us interest. The situation of PBL131 might not be as hard on SS as it would appear initially. In thinking a bit more about it, I have been reminded that this loan is a replacement for PBL054. That loan may have been repaid to SS's investors, but I doubt that the borrower has returned the £1.8M to SS, so they ought still to be paying interest on that even though PBL131 is shown as not having drawn down.
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toffeeboy
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Post by toffeeboy on Sept 28, 2016 15:04:20 GMT
/mod hat off It's not an unpopular view with me. I'd rather have an extra 0.1% or whatever it costs them, and no PF. There is no way the PF can be expected to do what (some) people are expecting it to do, and the 'discretionary' bit just makes for more noise around the topic than we really need. Even the RS one ('non discretionary') generates way more than its fair share of posting and snipings and general worriting. Now that losses are tax deductible there is even less justification for a PF than there was before (when higher rate tax payers suffered badly from a '12% interest .. 6% losses' regime). I'd be quite happy for INPL to vanish too - let's keep prefunding, but you can only actually buy what you have cash for (now THAT is likely to be more unpopular). (i.e. if you prefund £1k and you have £900 in you account, you get allocated £900). Have to say that I agree with both points, I only recently learned that SS had what is called a PF but I don't see that it adds anything to the safety of the business. In fact because it is funded by SS itself then it could be argued that it puts an added risk on the company as a whole even if it is discretionary.
With most loans now being fully funded then I agree it is time for INPL to finish as again it doesn't add anything in my opinion, as you say a fair way would be to continue to use prefunding but when the loan goes live the money has to be in your account to get a share of the loan. We get notice before loans going live so accounts can be funded in plenty of time if required.
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littleoldlady
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Post by littleoldlady on Sept 28, 2016 16:54:14 GMT
One option, which may or may not be popular, would be to have a fixed amount paid into the PF, and not withdrawn when the loan repays, and for the interest rate reduced by the same amount. So eg interest of 10% and 2% paid into the PF and left there until it's needed. This would achieve a similar effect to diversification on risk management. Even a newby with only one loan would have some protection. It might not suit those who prefer their own DD and loan selection to diversification. As the PF could potentially get very large if there are few defaults it would be best if lenders somehow became shareholders in 'SS PF Ltd' whatever it's called. This would be quite complicated but, I think, possible. Each lender would hold shares in proportion to his current loan portfolio.
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arbster
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Post by arbster on Sept 28, 2016 17:15:23 GMT
Sorry, but I think that just perpetuates all the bad things I highlighted above. Frankly, uninformed lending and no fear of consequences is what led to the 2008 economic crisis, and none of the lessons have been learned, as can be seen by Global economic policy. Bringing the same terrible mistakes into P2P would be tragic.
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littleoldlady
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Post by littleoldlady on Sept 28, 2016 17:42:43 GMT
Sorry, but I think that just perpetuates all the bad things I highlighted above. Frankly, uninformed lending and no fear of consequences is what led to the 2008 economic crisis, and none of the lessons have been learned, as can be seen by Global economic policy. Bringing the same terrible mistakes into P2P would be tragic. By that logic we should stop all forms of insurance and shut down the FSCS etc. It is true that the absence of a safety net makes one much more careful on the high wire, but I fear we live in an age where that is not going to happen.
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arbster
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Post by arbster on Sept 28, 2016 17:50:42 GMT
Sorry, but I think that just perpetuates all the bad things I highlighted above. Frankly, uninformed lending and no fear of consequences is what led to the 2008 economic crisis, and none of the lessons have been learned, as can be seen by Global economic policy. Bringing the same terrible mistakes into P2P would be tragic. By that logic we should stop all forms of insurance and shut down the FSCS etc. It is true that the absence of a safety net makes one much more careful on the high wire, but I fear we live in an age where that is not going to happen. Sadly both insurance and FSCS are also giving the illusion of safety - it's all degrees. Many insurers and banks are equally bankrupt, and the FSCS is underpinned by a bankrupt government. Applying a broken model to a fledgling industry doesn't make it safer, it just makes it more inefficient and less transparent. Yes, we are all doomed... 
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