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Post by captainconfident on Mar 10, 2017 18:44:38 GMT
How is it that solid looking businesses are rated B and C while companies with the most miniscule assets, tiny turnover and ethereal profits are rated A? Am I misunderstanding something? Are these really better prospects, or is dice rolling involved in these ratings?
Is there other information to which FC is privy but we don't get to see? Can this information be picked up from other sources?
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markr
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Post by markr on Mar 10, 2017 22:02:58 GMT
Well, it's a bit embarrassing, really. As usual, the risk bands for today's loans were carefully assessed, written on a PostIt note and stuck to the wall. Unfortunately, there was a BOGOF deal on Friday beer in the canteen, and the salsa dancing was a bit more, ahem, enthusiastic than usual. At the end of it, the risk band PostIt was nowhere to be seen and there was no time to carefully assess the loans again, so the risk bands had to be decided by a knock-out ping-pong competition.
FC had intended to add a banner to the website saying, "Due to a technical error, the risk bands for today's loans may be slightly more fictional than usual", but, due to a technical error, it never appeared.
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Post by captainconfident on Mar 11, 2017 0:21:15 GMT
Oh, it was that then. Beer, salsa dancing and ping pong. I read that British workers' productivity lagged behind those of our neighbours, but the FC staff can still bang out ratings on the fly, even when the crucial Post-it note was lost. Impressed!
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acky
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Post by acky on Mar 11, 2017 7:36:10 GMT
How is it that solid looking businesses are rated B and C while companies with the most miniscule assets, tiny turnover and ethereal profits are rated A? Am I misunderstanding something? Are these really better prospects, or is dice rolling involved in these ratings? Is there other information to which FC is privy but we don't get to see? Can this information be picked up from other sources? Well, the most important bit of information that we have no hope of seeing is the strength of the personal guarantees from the directors. But if this was of overriding importance in setting the grade, we would expect to see much better recoveries on the "better" grades. But total recoveries to date as a proportion of defaulted principal by grade is A+ 13.4%, A 22.5%, B 22.8%, C 22.9%, D 17.3%, E 3.3%. So much for that idea then!
I suppose they also get to meet the proprietors and assess whether they are the sort of people you'd happily buy a used car from, or refuse to buy a used pencil from.
But I wonder how much of it is simply down to negotiation. With FC going gung-ho for growth ahead of flotation, if a should-be C borrower says "no, I'm only paying 9%, take it or leave it!", do they suddenly become an A?
Personally I wouldn't touch A+, A or B SME loans - the returns simply don't compensate for the risk.
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blender
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Post by blender on Mar 11, 2017 9:50:44 GMT
Meet and assess the proprietors, acky? Surely that's what they do not do. The FC computer gets to meet the proprietor's computer and they agreed a loan and band. I think that the fact that the Cs and As are indistinguishable just demonstrates that we do not have sufficient information to make an assessment. Let alone flush out any contingent liabilities which are not included. It would be a good test for one lender to strip out the band and rate info from a sequence of pitches and for a set of lenders, who are good at assessment and due diligence, to give each loan a band from the data supplied. That could be compared with FC's computer band and conclusions drawn. Would need 100 loans + randomly selected.
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Post by captainconfident on Mar 11, 2017 11:28:17 GMT
if a should-be C borrower says "no, I'm only paying 9%, take it or leave it!", do they suddenly become an A?
This thought crossed my mind too. Back in the day, competitive bidding allowed the market to decide the worth of each pitch, with the grading system simply as a guide. Now these ratings are much more important as the reward is set and the risk has been assessed by criteria on which the investors are not fully informed. Some vulnerable people will even have autobodge set to react to these ratings. I still buy old FK loan parts on their secondary market because they have a low default rate and the the platform looks like it will be maintained to maturity but most importantly, each loan was set up with an account of the company history, the names of the directors and enough ancillary information to use the internet to do some proper research.
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blender
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Post by blender on Mar 11, 2017 14:03:03 GMT
I don't think you can bargain with the FC computer's band. You have to make a change to the proposal to have your sorting improved to Gryffindor.
Yes I remember the days when loans were banded and indicative rates were suggested for bands, but each loan finished between 4% and 15% according to the bids only. Now the rates are fixed to FC's judgement of risk (and available funds for property) and the bands are indicative of a loss rate. The target system is based on the lenders not having to judge individual loans. The pitch is only window dressing. If you try to do better by judging the risk/reward balance of individual loans, then increasingly you are going against the direction of travel of the site, and you become part of a demanding minority which is not really wanted on the voyage.
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