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Post by freefalljunkie on May 14, 2020 11:23:05 GMT
I am trying to look at this objectively. There is £64,954,124 projected to be available to cover capital (this would mean zero interest for investors!). There are loans of £830,694, 865 in the portfolio. So non-recoverable defaults would have to hit 7.82% to put capital at risk. The current projected default rate is 4.72%. In the 2008 financial crisis, Zopa defaults hit 5.54% at their peek. So this crisis would have to be over 40% worse than the global financial crisis before capital is exposed. All of this assumes, that there are no mitigation measures or bailouts of any shape or form. I suspect Ratesetter may be instigating mitigation measures by ensuring that new borrowers (including rollover borrowers as described in my post above), and there is clearly a prospect of some form of limited bailout, most likely from shareholders (say an additional £10,000,000 to keep the business alive). Clearly if non-recoverable defaults hit 20-25% then investors will be stuffed but that it a would make this crisis more than four times bigger than the financial crisis of 2008 (on the assumption that Ratesetter and Zopa have similar underwriting standards). It is much more likely that defaults will come in between 5.54% and 10%. Admittedly, it gets tricky when defaults rise above 7% but there is a reasonable prospect of capital remaining in tact through to a default rate of say, 8 or 9% (if mitigation measures are introduced by Ratesetter) - this would mean that the financial fall out of Covid 19 would have to be 60% worse than the 2008 crisis before our capital is at risk. There is no bright outlook, we will be locked in for the term of the loans with zero interest. Whilst our capital is not protected the economic situation has to get really bad before defeat becomes inevitable and accept that there will be a capital loss. Do I still get my gold star for optimism? Definitely a gold star :-) I wish I could share the optimism :-( The flaw here is that the £64,954,124 is itself not guaranteed. Unless I have misunderstood something it is dependant on projections of future inflows into the PF from non-defaulting loans. If the defaults go up, not only does the PF have to pay out to cover the bad loans, it takes a double hit because those loans don't pay into the fund as projected. The current crisis is, without doubt, an order of magnitude worse than the 2008 crisis and I could see loan defaults going above 7%.
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tjtl
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Post by tjtl on May 14, 2020 11:38:54 GMT
Great post by Lingield earlier today trying to bring some analysis to bear. The problem that we have with any meaningful analysis are
• There is an absolute lack of clarity. None of us can predict how Covid is going to play out, none of us know what the impact will really be on the economy (even the economist models are just glorified guess-work), and possibly very few have any idea of the true state of ratesetters’ finances (and importantly the willingness of their shareholders to provide further additional support)
• And most posters have made up their mind and aren’t interested in analysis. There are those who are confirmed pessimists, will forever forecast the inevitability of substantial losses, and appear to be auditioning for the next series of Dad’s Army (“Aye, we are all doomed, I tell ye, all doomed”), and there are those who think it might not be quite that bad.
As far as I see it I made the decision to invest in a range of P2P sites, I took the risk, and the only thing I can do is see how it plays out- there seems very little point panicking over it (and I speak as someone who had seven figures on the sites, so may well have learnt a very expensive lesson).
This crisis has many months to run, there are a lot of actors who can influence how it plays out- from politicians to central bankers, from shareholders in P2P platforms to retail banks willingness to see their debtors through this. The best we can hope for is sensible clarity form the platforms, and enjoying the debate about the outlook until clarity is forthcoming.
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Post by diversifier on May 14, 2020 12:12:58 GMT
On an unrelated topic, Goldman Sachs received $10bn TARP in 2008, got into retail banking with their “Marcus” account a couple years back after not doing so for 150 years, and now offer the leading depositor interest rate.
Not anymore. They cut it to 1.05% a few days ago. The leading rate for an instant/easy-access FSCS protected savings account is now the Freedom account from RCI Bank at 1.2%. God knows how long that will last.
Errr...just looked up RCI Bank, as I hadn’t heard of them before. I think it makes my point perfectly. RCI is a French bank linked to Renault, and were only recently given permission to operate in UK. Renault set up a bank in the UK to finance their car sales, even though they sell very few cars here. RCI Banque is “one of the largest issuers of auto loan asset-backed securities in Europe”, you can make your own assessment of how that will fare over the coming months. RCI institutional credit was junk-rated even in the good times. Having paid only a small recent amount of banking insurance premiums into the FSCS, Renault’s arms-length instrument will be in line to get £2bn handout from the FSCS when their “bank” fails. It is of course not a real bank. Renault have already taken home the full price of the cars they sold, leaving any debt to be covered by the UK taxpayer. If you want to know why anyone would lend at today’s rates with today’s risk, it’s because that’s not the real transaction on the table.
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Post by shanghaiscouse on May 14, 2020 13:35:25 GMT
Great post by Lingield earlier today trying to bring some analysis to bear. The problem that we have with any meaningful analysis are • There is an absolute lack of clarity. None of us can predict how Covid is going to play out, none of us know what the impact will really be on the economy (even the economist models are just glorified guess-work), and possibly very few have any idea of the true state of ratesetters’ finances (and importantly the willingness of their shareholders to provide further additional support) • And most posters have made up their mind and aren’t interested in analysis. There are those who are confirmed pessimists, will forever forecast the inevitability of substantial losses, and appear to be auditioning for the next series of Dad’s Army (“Aye, we are all doomed, I tell ye, all doomed”), and there are those who think it might not be quite that bad. As far as I see it I made the decision to invest in a range of P2P sites, I took the risk, and the only thing I can do is see how it plays out- there seems very little point panicking over it (and I speak as someone who had seven figures on the sites, so may well have learnt a very expensive lesson). This crisis has many months to run, there are a lot of actors who can influence how it plays out- from politicians to central bankers, from shareholders in P2P platforms to retail banks willingness to see their debtors through this. The best we can hope for is sensible clarity form the platforms, and enjoying the debate about the outlook until clarity is forthcoming. One thing is for sure. Its going to be bad. My own experience comes from Funding Circle, which is a disaster. Defaults on 2018 cohorts in my portfolio are 20-25%. I have 60k of defaults on a 250k portfolio with only 3k recovered since last August when 26k was already defaulted. I don't think RS has any better or worse underwriting than FC. Its just that the fund, whilst also having beneficial effects, shields your view of what is happening under the surface. Then there's COVID. I'm sorry, but there is no reason to be happy, and all this talk of 'oh, if they just cut interest to zero we won't like it but we'll be OK' is utter rubbish, obviously there are going to be defaults when the economy contracts 20% in a year and not getting your interest is going to be the last of your worries.
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tjtl
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Post by tjtl on May 14, 2020 13:47:24 GMT
S-scouse- I am also in the disaster that is Funding Circle, and Wellesley, and Relendex, and AC as well as Ratesetter. While I also have some bruises (but with the exception of FC less than I expected), I don't believe the quality of the businesses, or rather the quality of the management teams, are the same across the piece. I have met Rhydian a few times, and of course can be seduced by his charm , but frankly think he is head and shoulders above the management of Funding Circle- at the very least he didn't pimp the business ahead of an IPO which enriched them at the expense of the integrity of the business. I do expect, on the basis of no analysis but 40 years of investing, some pain in Ratesetter- but not the same magnitude as FC- simply because they are better run
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
Posts: 670
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Post by beagle on May 14, 2020 14:18:41 GMT
I agree, I haven't met him but spoken to him. I truly feel if anyone will make it out properly it is ratesetter. Am I worried, yes. but 40 million released and their team reply very very fast shows to me that at least they are dug in for the long haul
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Post by RateSetter on May 14, 2020 16:27:47 GMT
Good afternoon everyone. Today we have delivered £0.3m. Full update below:
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Post by lingield on May 14, 2020 16:53:32 GMT
I completely agree with tjtl's post. There are so many potential variables that can work one way or another that it is impossible to predict which way it will go at this stage. I am just trying to shine a light on a foggy situation and illustrate that investors should not give up (yet).
It might surprise some but my understanding is that consumer debt (unsecured lending) generally has a better recovery rates than secured lending in a distress scenario. The key point is that the debt obligation does not evaporate even if the borrower misses several payments. It sticks with the borrower and whilst he/she can run it is very difficult to hide. Ultimately, on a portfolio basis a significant portion of these defaulted loans will be recovered (after the discounting the market default rate which should be largely priced in). The reason being is that no one wants to declare themselves insolvent for a relatively small sum of money (eg. £500 -10k), as it could prevent them from progressing their lives on a number of fronts (Eg. difficult/more expensive to get a mortgage/re-mortgage, obtain insurance, have certain jobs and careers all for a reasonably long period of time). In contrast larger secured loans, which when they fall over can just be too big for the borrower to do anything other than declare themselves insolvent. I do not know how Ratesetter has constructed its loan portfolio, but assuming that the portfolio has been constructed properly the consumer lending is certainly capable of holding up even through a period of substantial distress. I would also hope that if RS have stuck to their risk guidelines (max 65% LTV) that their secured lending should hold up reasonably well.
On the default rate, of course if the loan default rate increases this would reduce the inflow into the PF, but assuming that the default rate is not into double figures, it should only have a marginal impact and I would hope that Ratesetter are aware of this nuance and to the extent that they are able to take any steps to increase the the PF fund I would hope that those steps would make up for at least that marginal loss which is why I suggested that investors capital should be okay up to 7% (as opposed to 7.82%) but potentially beyond that if Ratesetter are smart.
If default rates move into the double figures there is clearly going to be an issue for investors, but losing £83,000,000 would be quite an achievement in this asset class (but I accept not impossible).
I am pretty confident however that a lot of investors will be waiting a very long time before their RYIs get to the top of the queue.
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jane
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Post by jane on May 14, 2020 17:45:09 GMT
It might surprise some but my understanding is that consumer debt (unsecured lending) generally has a better recovery rates than secured lending in a distress scenario. The key point is that the debt obligation does not evaporate even if the borrower misses several payments. It sticks with the borrower and whilst he/she can run it is very difficult to hide. Unfortunately it is a lot more expensive to chase people that are hiding, and to gently squeeze their assets until they pay up, than it is to just collect their payments straight from their bank account each month.
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Post by scepticalinvestor on May 14, 2020 18:56:39 GMT
Good afternoon everyone. Today we have delivered £0.3m. Full update below: 300k. Is that the lowest daily figure yet? Not complaining, just curious. Something is better than nothing.
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Post by lingield on May 14, 2020 20:32:09 GMT
You would expect this to drift towards zero. I am surprised that it has been as high as it has been, but I also have a theory that the recent dips might be caused by 'rollover' loans (eg. if a £500k property development loan expired today, unsurprisingly the borrower has not been able to repay and needed to re-finance, that loan would need to be re-financed by the cash that would typically be used to fund RYI. This would allow the existing investors to be repaid if they have the current settings set correctly, but slows down the RYI queue significantly (if you ignore that the borrower does not have the cash to repay!) at its current point (but the queue as whole would have the same average RYI queue time). This however is complete speculation on my part, but if correct it illustrates how the numbers can be manipulated and change the outcome for investors significantly.
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
Posts: 670
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Post by beagle on May 14, 2020 21:53:47 GMT
I really would not panic, some days are low some are high. The daily analysis serves just stress the macro view is what the focus is on and all the variables. Fact is over 40 million and no sign of stopping. Remember, they could also not release anything like a few others..... If it stops then something is wrong but right now the music is just slowing. When it slowed one week it jumped to over 5 million... so there is no real theme other than over 4 million, everything is ok.
The critical pain point here is purely the communication, what is clear to me is that they have no intention to share queue info ( i have asked a few times) so if they are not sharing this and they have released 40 million the queue must be either too big to handle or fear of sharing a number that might create more nerves...and so also make others join in, this is why i think it is not talked about.
I know confidence is key, communication is key and with investing there is a lot of emotion, however, there is also a point where too much information might freak us out. What would it change if you have no information and they keep releasing vs having the information and they keep releasing. It actually just makes you worry more and that serves no purpose. What was unfair wrong and irresponsible was to suggest a week, a month an anything if you also say it is liquidity and no time frame. This was wrong and created a false perception, it sets expectations (i was one of them) and if you cant meet them dont offer anything. I just feel sorry for the poor customer facing staff who deal with management telling them this what investors want to hear (and after a month...? what...2 3 4) talk about being caught in the middle.
What would serve wider purpose is really explaining the ratios in depth, the logic of their forecasts, the fund balance and why it dropped before covid (were we on track for a interest reduction anyway....?) These questions I think offer comfort and have weight as you can use them. It also brings the investor closer to the platform. They keep telling us it is our risk... well tell me these things.
Ratesetter are doing well overall given the situation i am sure they are learning day by day just like us. I just hope when things calm down and ratesetter get through this they learn that investors invest with risk and with risk you need facts to base that risk or the reward isnt good enough.
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Post by danny101 on May 15, 2020 13:12:36 GMT
I don't know if its just my imagination but within the last week I, ve been able to catch £ 425 out of a £25000 investment. This doesnt include any 1 or 5 year loans just access plus and max I usually get hardly anything (by setting my rates at 8% and cancelling). Is this just a blip or has anyone else noticed something similar.
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chris1200
Member of DD Central
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Post by chris1200 on May 15, 2020 14:13:57 GMT
I don't know if its just my imagination but within the last week I, ve been able to catch £ 425 out of a £25000 investment. This doesnt include any 1 or 5 year loans just access plus and max I usually get hardly anything (by setting my rates at 8% and cancelling). Is this just a blip or has anyone else noticed something similar. Repayments won't necessarily be consistent, especially if a borrower repays early or if the provision fund kicks in to repay a defaulted loan. So, fluctuations are very possible.
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Post by mistoffelees on May 15, 2020 14:17:50 GMT
I don't know if its just my imagination but within the last week I, ve been able to catch £ 425 out of a £25000 investment. This doesnt include any 1 or 5 year loans just access plus and max I usually get hardly anything (by setting my rates at 8% and cancelling). Is this just a blip or has anyone else noticed something similar. Repayments won't necessarily be consistent, especially if a borrower repays early or if the provision fund kicks in to repay a defaulted loan. So, fluctuations are very possible. I've graphed out my expected repayments by month assuming I sweep it all (ie nothing gets re-lent). This is probably a perfect example of your point.
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