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Post by shanghaiscouse on May 7, 2020 9:17:44 GMT
Good evening everyone. Today we have delivered £1.7m. Full update below, which can also be found on our website here. Wow great stuff, guys! Keep this up and we'll all be back soon enough That is the question, can they keep this up. This is similar to how Funding Circle's crunch evolved last summer. The P2P will try desperately to keep on making the payments out, which in the minds of lenders creates an illusion of normality. But things are far from normal in the economy. Hence it is just a matter of time before the P2P has to admit it cannot continue trying to follow the original business model. FC first closed the secondary market, before finally closing to all retail investors, with existing retail investors now just running down their loans. RS is also following the same path but its actions are very gradualist, in the hope they can avoid shocking lenders and thus keeping a flow of incoming new funds. The big difference is that Funding Circle started securitising their loans a couple of years ago so had a different class of investors that RS does not have, which gave them the option to dump retail investors altogether. I am not sure why RS has not gone down the securitisation route. FC was selling off £200m blocks of loans all in one go to institutions.
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arby
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Post by arby on May 7, 2020 9:40:29 GMT
If the biggest economic crisis in history only results in a halving of our return and a protracted withdrawal period then we've gotten off very lucky. By extension, I wouldn't be too surprised if the ultimate position ends up worse than the above, but there aren't many sectors that could say they were fully prepared for this type of event.
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chris1200
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Post by chris1200 on May 7, 2020 10:28:58 GMT
Central Bank interest rates are not directly linked to commercial interest rates.
Borrowers around the world are facing higher interest rates as lenders become more nervous - average rates paid have gone from 1% above benchmark to 3.5% above benchmark, since January.
graph removed
No reason to expect Ratesetter would be immune from the laws of supply and demand. Same thing happened in the last crash.
Is there not a complicating factor now, that the Government (or more accurately indirectly us) is flooding the market with cheap easily accessible loans. Arguably that would seriously disadvantage RS in the market place for some loan types currently. Exactly. There's also a difference between what commercial banks are charging borrowers in their (non government-backed) lending, vs. the rates that RS is able to pass on to investors while still being attractive in the market place and keeping its own operations stable.
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arby
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Post by arby on May 7, 2020 11:20:19 GMT
Is there not a complicating factor now, that the Government (or more accurately indirectly us) is flooding the market with cheap easily accessible loans. Arguably that would seriously disadvantage RS in the market place for some loan types currently. Exactly. There's also a difference between what commercial banks are charging borrowers in their (non government-backed) lending, vs. the rates that RS is able to pass on to investors while still being attractive in the market place and keeping its own operations stable. Disadvantages RS in terms of their future business, but cheap government loans should help reduce defaults on the current loan book which is what I assume most of us care about.
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Post by jaycee on May 7, 2020 12:48:48 GMT
There is always more funds available on the Access Market than the 1 and 5 year markets. Anyone know what else is causing the access market to be illiquid? It doesn't make sense to me. There is £1.8m looking to lend at 3.2%. My average rate in Access is 3.3%. My capital could be returned by selling my loans at 3.2% to those people.
Everyone would be happier, and Ratesetter would make 0.1% additional profit. But apparently interest rates can only go downwards because the Bank of England says so.
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Post by erniec on May 7, 2020 13:00:18 GMT
There is not £1.8 million looking to lend at 3.2%!!
There is that amount looking for 3.2% or considerably more.
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chris1200
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Post by chris1200 on May 7, 2020 13:42:22 GMT
Exactly. There's also a difference between what commercial banks are charging borrowers in their (non government-backed) lending, vs. the rates that RS is able to pass on to investors while still being attractive in the market place and keeping its own operations stable. Disadvantages RS in terms of their future business, but cheap government loans should help reduce defaults on the current loan book which is what I assume most of us care about. Right - but this discussion was in relation to someone saying that RS should have raised investor rates. I was making the point as to why that would have been mad.
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aju
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Post by aju on May 7, 2020 16:06:17 GMT
Disadvantages RS in terms of their future business, but cheap government loans should help reduce defaults on the current loan book which is what I assume most of us care about. Right - but this discussion was in relation to someone saying that RS should have raised investor rates. I was making the point as to why that would have been mad. If anyone is interested over the last 4/5 days there was an average of 743,000 in 5 days and £927,000 if 4 days based on current volume since 3/5 of £3,717,723. That's not that much considering turn-round value of non selling people. That probably would mean that above set rates may never be reached. In other words unless RS were to tempt new lenders in with probably quite a bit higher rates then lending will not rise much above the set rates. If anyone is interested I have 1Y set at 8% the top rate I could get and I think there was a distinct chance I lend out at that rate if someone actually came in to borrow or worse someone else managed to sell a good sum from the 1Y. I pulled it out quickly so I don't have to pay any fees on relend funds.
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Post by Deleted on May 7, 2020 16:44:47 GMT
The 1 year market was around 8% yesterday - early evening I think.
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aju
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Post by aju on May 7, 2020 16:47:42 GMT
The 1 year market was around 8% yesterday - early evening I think. Yes that's what I found when I checked this morning.
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Post by erniec on May 7, 2020 16:49:39 GMT
The 1 year market is empty of lenders, that’s why the rates were so high.
I suggest that this means that RYIs in that market may grind to a halt.
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Post by RateSetter on May 7, 2020 17:04:40 GMT
Good afternoon all. Today we have delivered £0.6m and the full update is below:
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Post by diversifier on May 7, 2020 17:08:39 GMT
Disadvantages RS in terms of their future business, but cheap government loans should help reduce defaults on the current loan book which is what I assume most of us care about. Right - but this discussion was in relation to someone saying that RS should have raised investor rates. I was making the point as to why that would have been mad. You haven’t explained at all why you think raising rates would be mad? I’ll try an attempted humorous analogy scenario: Consider RS as a retailer of unobtainium jewellery, profits based on a % of sales volume. The largest unobtainium mine in the world recently flooded, and other mines have much larger production costs. If the wholesalers continue supplying at the previously agreed wholesale price, they would go out of business. Wholesalers request a price increase and stop shipping until a new wholesale price is agreed. The retailer doesn’t want to reduce sales margin, due to fixed costs and the marginal profitability of the business. They aren’t keen on raising the retail price, because this will cause their sales volume and therefore revenue to drop. Although due to the massive upset in the world of unobtainium jewellery, they have no actual data on future sales volume at either old or new price. The retailer decides to insist on the previous wholesale price, without success. They now haven’t received any new stock in two months, without which they can’t close any sales at any price. They do have a trickle of sales on second-hand stock. They continue to pay rent on the shop, hoping that the unobtainium mine will re-open, to resume the business as before, although nobody else thinks it will. Do you think the shopkeeper is acting correctly? Are there alternative strategies that might improve the outcome? I have thought of four options. Trialing higher wholesale and retail price, to gather sales data, is my preferred. But the shopkeeper’s strategy ends in practice like this: “The shopkeeper hands back the shop lease to minimise fixed costs, and flogs the ex-display stock on eBay over the next five years. He maintains his margin on the stock and doesn’t make a loss, but it’s a hobby not a business”
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chris1200
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Post by chris1200 on May 7, 2020 17:13:23 GMT
Right - but this discussion was in relation to someone saying that RS should have raised investor rates. I was making the point as to why that would have been mad. You haven’t explained at all why you think raising rates would be mad? I’ll try an attempted humorous analogy scenario: Consider RS as a retailer of unobtainium jewellery, profits based on a % of sales volume. The largest unobtainium mine in the world recently flooded, and other mines have much larger production costs. If the wholesalers continue supplying at the previously agreed wholesale price, they would go out of business. Wholesalers request a price increase and stop shipping until a new wholesale price is agreed. The retailer doesn’t want to reduce sales margin, due to fixed costs and the marginal profitability of the business. They aren’t keen on raising the retail price, because this will cause their sales volume and therefore revenue to drop. Although due to the massive upset in the world of unobtainium jewellery, they have no actual data on future sales volume at either old or new price. The retailer decides to insist on the previous wholesale price, without success. They now haven’t received any new stock in two months, without which they can’t close any sales at any price. They do have a trickle of sales on second-hand stock. They continue to pay rent on the shop, hoping that the unobtainium mine will re-open, to resume the business as before, although nobody else thinks it will. Do you think the shopkeeper is acting correctly? Are there alternative strategies that might improve the outcome? I have thought of four options. Trialing higher wholesale and retail price, to gather sales data, is my preferred. But the shopkeeper’s strategy ends in practice like this: “The shopkeeper hands back the shop lease to minimise fixed costs, and flogs the ex-display stock on eBay over the next five years. He maintains his margin on the stock and doesn’t make a loss, but it’s a hobby not a business” ... I'm sorry, what?
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Post by diversifier on May 7, 2020 21:21:07 GMT
You haven’t explained at all why you think raising rates would be mad? I’ll try an attempted humorous analogy scenario: Consider RS as a retailer of unobtainium jewellery, profits based on a % of sales volume. The largest unobtainium mine in the world recently flooded, and other mines have much larger production costs. If the wholesalers continue supplying at the previously agreed wholesale price, they would go out of business. Wholesalers request a price increase and stop shipping until a new wholesale price is agreed. The retailer doesn’t want to reduce sales margin, due to fixed costs and the marginal profitability of the business. They aren’t keen on raising the retail price, because this will cause their sales volume and therefore revenue to drop. Although due to the massive upset in the world of unobtainium jewellery, they have no actual data on future sales volume at either old or new price. The retailer decides to insist on the previous wholesale price, without success. They now haven’t received any new stock in two months, without which they can’t close any sales at any price. They do have a trickle of sales on second-hand stock. They continue to pay rent on the shop, hoping that the unobtainium mine will re-open, to resume the business as before, although nobody else thinks it will. Do you think the shopkeeper is acting correctly? Are there alternative strategies that might improve the outcome? I have thought of four options. Trialing higher wholesale and retail price, to gather sales data, is my preferred. But the shopkeeper’s strategy ends in practice like this: “The shopkeeper hands back the shop lease to minimise fixed costs, and flogs the ex-display stock on eBay over the next five years. He maintains his margin on the stock and doesn’t make a loss, but it’s a hobby not a business” ... I'm sorry, what? RS website right now are advertising “competitive borrower rates from 3.9%”. If you subtract risk and profit margin from that, they are selling £10 notes for a fiver. Anyone can do that, but once RS investors stop providing them the £10 notes for £4 (which we have) they run out of stock within days. That business has no future. A more sensible plan is to *try* to find great borrowers prepared to pay 10-12%, and source that from us at 6-8%. There are clearly far fewer of those borrowers than at current levels. RS loan book will shrink and revenue will drop. But as of today, RS have no re-investment => can’t write any loans => revenue *generation* is zero. Current revenue was all generated on loans written previously, with time lag to interest received. Something is better than nothing. If RS simply can’t find a Zone of Agreement between borrowers and lenders - which I don’t think is likely - then they are just running down the book. That’s what they’re doing *right now*. There’s really no point in paying fixed costs of marketing and staffing while you’re doing that. They retain contractual minimum staffing to keep the lights on, and live on the wind down repayments receivable (“sell the shop premises, flog the stock on eBay”). Alternatively, pivot the business model and get lender cash from non-retail investors who have complementary goals. Obvious choices are to sell the securitised debt wholesale or start selling insurance. Read Warren Buffett to understand how owning an insurance company is equivalent to getting other people to pay you for the privilege of borrowing their money. (“sell adjacent products in the shop”). Or integrate with a strategic cash-generative business. Wouldn’t it be TRULY AWESOME if Apple launched Apple Loans, integrated with Apple Pay, owning literally the entire money-chain, parking a cash mountain away from the tax system into long-duration assets (“vertically integrate with the wholesaler”). Amazon Loans works for me too - buy now pay later, we know all your buying patterns, changes in borrower circumstance are an open book to us. Edit: Or CBILS as freddie123 suggested. I didn’t think of that.
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