Post by jo on Nov 17, 2016 12:31:45 GMT
'Funding Circle reaps the seeds it sowed in America
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by: Kadhim Shubber
Funding Circle’s dreams of making it big in America have turned out to be a little tougher to execute. The British online lender’s US loans haven’t performed to the liking of hedge fund Victory Park Capital, and the startup cut volumes by half at the start of the year in order to improve quality.
According to the company, the problem is loans written in the first half of 2015, and we got some sense of the level of underperformance back in August. Now we’ve got some more colour on the scale of the issue, courtesy of the company’s UK-listed fund, which filed its half-year report on Friday.
First, some basic figures. The fund had assets worth £168m at the end of September, up from £152m at the end of March. That’s not much of a change, but underneath the topline figure there was a large deployment of cash into loans, so the £168m is mostly loans, whereas over a third of the assets in March was cash.
About a quarter of the £168m is allocated to the US in the accounts, which presumably means loans Funding Circle has made in America, and some cash too. So £43m of US assets at the end of September, up from £26m at the end of March.
When you look at the impairment of loans allocated to the US, however, there is a much more dramatic rise. Between the end of November, when the fund launched, and the end of March, there was £30,000 worth of US loans impaired. Over the slightly longer period from March to the end of September, there was £820,000 worth of US loans impaired, an increase of 2,600 per cent. (Or 1,700 per cent if we adjust for the two extra months.)
You can see the same thing playing out in the increase of defaulted loans, which we’ve underlined:
FundingCircle1
Obviously comparing just two consecutive periods may not account for any timing effects, and a spokesperson for the lender said its US loans have had higher gross yields than in the UK, which would mean higher losses too. But it does look like the impact of Funding Circle’s underwriting in early 2015 is starting to come through. The question is when it peaks and at what level.'