Thought for the weekend

Asked about any concerns about the course of Greek banks in case of Deutsche Bank collapse, Mr. Stournaras replied that “both the Greek system and the international one are protected. We have tools in our hands that we didn’t have a few years ago. “ He clarified that he is not worried about the international banking system and “this assured the prime minister.”

–“Stournaras: the case of Deutsche Bank does not worry us”, September 29, 2016 (with some help from Google translate)

Continue reading: Thought for the weekend

Asked about any concerns about the course of Greek banks in case of Deutsche Bank collapse, Mr. Stournaras replied that “both the Greek system and the international one are protected. We have tools in our hands that we didn’t have a few years ago. “ He clarified that he is not worried about the international banking system and “this assured the prime minister.”

–“Stournaras: the case of Deutsche Bank does not worry us”, September 29, 2016 (with some help from Google translate)

Continue reading: Thought for the weekend

Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Nasdaq’s “fall” from ETF dominance

Jeffrey McCarthy, head of exchange traded product listings at Nasdaq, was a tad defensive when we asked him about Nasdaq’s position as an ETF exchange.

Not because Nasdaq ranks behind Bats and Nyse in both shares traded and notional volume, but because Nasdaq had claimed on its website that it was indeed the biggest for ETFs.

Continue reading: Nasdaq’s “fall” from ETF dominance

Jeffrey McCarthy, head of exchange traded product listings at Nasdaq, was a tad defensive when we asked him about Nasdaq’s position as an ETF exchange.

Not because Nasdaq ranks behind Bats and Nyse in both shares traded and notional volume, but because Nasdaq had claimed on its website that it was indeed the biggest for ETFs.

Continue reading: Nasdaq’s “fall” from ETF dominance

P2P investments in Virgin Media and similar companies

P2P investments in Virgin Media and similar companies

Rezzah Ahmed founded WiseAlpha with the ambition to democratize investing in secured corporate bonds so that retail investors can earn a superior return without taking the amount of risk present in p2p SME or consumer lending. WiseAlpha after testing in beta for 1.5 years, allowed individual investors for the first time to use its online platform, […]

P2P investments in Virgin Media and similar companies

Rezzah Ahmed founded WiseAlpha with the ambition to democratize investing in secured corporate bonds so that retail investors can earn a superior return without taking the amount of risk present in p2p SME or consumer lending.

WiseAlpha after testing in beta for 1.5 years, allowed individual investors for the first time to use its online platform, and purchase secured loans in affordable sizes of their preferred company.

The market

Secured corporate bonds are a very exclusive market, where loan size on average is worth more than 1 million GBP.  This makes it a difficult opportunity for even high net worth individuals to invest.

Banks who underwrites such bonds does not even entertain funds with AUM less than $200 million. According to the founder, only 150 big funds like Pimco, Blackrock and such invest in this market. Bonds are made available with a minimum denomination of £100,000 wherein one can execute the transaction through a stock-broker or private bank. For the average investor, invariably none of these are accessible since very few people have £100,000 to invest in a single investment.

The solution

The majority of everyday investors can now, therefore, access these investments on WiseAlpha platform and invest in companies like Virgin Media, a 20 billion GBP cable TV giant.

The average term for the bonds and loans is for 3- 10 years. For now, WiseAlpha has 6 companies on the platform. The average yield is 6.6% and the lowest is for Virgin media at 4.5% and the highest yield is 8.5% for Garfunkelux, a debt collection business.

The senior secured market is structured in a way; where the loan is usually for  30%-50% of the value of the company. The ratings for the bonds are based on LTV, so companies with more debt are at the bottom of the investment grade (B to BB range).

Companies established for a long time and having a large asset base are providing a high rate of return with lower volatility. In general, as well, secured bonds and loans provide better return with lower risk making it an interesting alternative to the products offered by the general P2P market.

Yield

Since large companies are involved in this segment; default rate is less than 1%. There is a difference between company quality and credit risk on security. Companies who usually issue such bonds are high-quality companies. But due to high levels of leverage, these companies do not enjoy an investment grade rating. This allows WiseAlpha to offer them as investments to p2p lenders.

Returns of 5-8% are in the range of p2p investing, but the risk of default is lower than a consumer or an SME.  The company does not focus on investment grade bonds as they just do not offer the returns necessary to elicit the interest of retail p2p investors.

Customers

WiseAlpha offers services not only to individuals but to third party asset managers and private small family firms, to have access to corporate loan investments that until now only the established financial institutions across the globe could access. The online platform ensures there is a scope of creating a wider investment audience for the asset class and replace the substantial costs and complexity of investing in the product.

The transparency espoused by the platform leads to a cost effective transaction which is simpler and faster. It pre-purchases the different loans and bonds and runs the risk of a loss until those are sold. Typically, it keeps some bonds and loans on its balance sheet, so that it has some stock available and can provide variety to its customers.

Company history

WiseAlpha was launched in the beginning of 2015 and is headquartered in London, UK. It was able to raise $1.25 million in seed capital from crowdfunding sites- CrowdCube and Seedrs. Its founder Rezaah Ahmad specializes in financial technology, origination, and M&A advisory. He was Director at Queensbridge Associates, a specialist firm focussed on financial and operational restructurings.

In Feb 2016, a full- fledged online investment platform was introduced which gave individuals a chance to invest along hedge fund titans in secured corporate loans of well know British companies like Virgin Media, United Biscuit, RAC to name a few.

Traction

Since the time of its launch, it has managed to bring in 600 investors on board and has done investments in low single-digit millions. The loans are senior secured bonds which essentially mean in the case of default by the borrowing company, they share the same status as the most secure bonds. Two major investment banks in the UK are backing WiseAlpha right now.

If it is able to achieve the volumes like other big p2p lending companies, it will become an interesting proposition for the banks. Banks can sell the bonds to anyone who can afford to buy and WiseAlpha act as a lender of record between the investor and the borrower.

P2P market in the UK is about $6 billion in volume and corporate secured bonds and loans are worth over $1trillion. This highlights the total addressable market for the young startup.

The future

Wise Alpha’s vision for the next five years is to develop the platform and become the central marketplace globally for this asset class of loans and bonds. It is aggressively planning to bring more companies on board. It is increasing the number of companies on its platform to 8 in the next few weeks and aiming for 20-30 companies in the next few years. In its endeavor to provide high-end service to its customers, it is starting robo tools that will enable its customers to diversify from their initial investment.

Right now, WiseAlpha is also creating a secondary market for liquidity purposes. In the secondary market, the company will either try to find a buyer or even buy the bonds for its own account. The company is trying to disrupt a segment of the industry which has long been the domain of the largest of investment banks and asset managers.

This is an attempt at not only generating superior returns for the investor but also reducing the fat fees being charged by banks and fund managers.

Author: Heena Dhir and George Popescu

George Popescu

Friday September 30st 2016, Daily News Digest

Friday September 30st 2016, Daily News Digest

News Comments Today’s main news: Prosper shutting down secondary market; 3 major banks on their knees; JP Morgan deal with Invest Cloud. Today’s main analysis: Lending Club’s email to their clients. Today’s main thought provokers: How Monzo got 40,000 clients. United States A very interesting email from Lending Club, very smartly written in Patrick’s name and […]

Friday September 30st 2016, Daily News Digest

News Comments

  • Today’s main news: Prosper shutting down secondary market; 3 major banks on their knees; JP Morgan deal with Invest Cloud.
  • Today’s main analysis: Lending Club’s email to their clients.
  • Today’s main thought provokers: How Monzo got 40,000 clients.

United States

  • A very interesting email from Lending Club, very smartly written in Patrick’s name and from his point of view. Who’s Patrick ? I commented in line extensively paragraph by paragraph (as today was a slow news day and I had more time).
  • 3 banks are on their knees: Wells Frago, Deutsche Bank, and Commerzbank. Two of them are the major banks in Germany.  This news is critical for a few reasons. First, it will affect interbank interest rates, which will propagate into all interest rates. Second, if banks who are top lenders like Wells Fargo have to cut cost they will also cut business lines. Which is a great door open for our industry? And last, if this gets worse, it may, in fact, be the beginning of a next Greece-like crisis , except affecting major economies.
  • Prosper is discontinuing their secondary market because nobody is using it. I have a lot of thoughts on this and I wish they had reached out to talk about it 1st. I am a frequent user of both Prosper’s Secondary Market and Lending Club’s Secondary market. I wonder if anybody at Prosper is using both ? Here is my takeaway: if I want to sell something at Lending Club the process is simple, clear and I always manage to sell them. I tested and I can sell notes in seconds if I discount 20% the price. On Prosper I tried numerous times and I never managed to sell a single note. Why ? Both platforms are powered by the same legal setup with Folio Investing. So the problem is the process of listing, the pricing and the liquidity. I strongly believe a secondary market is MUST HAVE for these platforms. I deplore that they are closing it down. Please, please let me help launch it right so that you can keep it open.
  • JP Morgan signs deal with InvestCloud (not that long after the deal with OnDeck). Dimon committed to spending $300 million over the next three years on digital improvements in asset management.
  • Single-Family rentals vacancies inch up a little. I think it is still noise, no new signal.
  • How Monzo got 40,000 new clients with hardly any marketing spend? A very interesting process.

Other countries

  • Today I didn’t find any relevant news from other countries, regrettably. I am surprised as well. Please feel free to point us to news worth covering. Our readers in aggregate are by far my best source of news.

 

United States

 Update on where Lending Club stands, what we’re working on, where we’re headed, (Email Lending Club), Rated: AAA

Comment: this is an email sent from Lending Club to all clients. It was written in the name of their newly hired Chief Capital Officer, Patrick Dunne.


Dear George,

I wanted to take a moment to introduce myself. I’m Patrick, Chief Capital Officer at Lending Club. I joined the Lending Club team a few months ago. My job is ensuring that all of our investors have a great investment experience at Lending Club. I wanted to provide an update on where Lending Club stands today, what we’re working on, and where we’re headed.”

Comment: I like the direct personal tone and the feeling of approachability by introducing himself as Patrick instead of, the other extreme, which would be Mr. Dunne. As a retail client I relate to this tone well.

Email continues :

“Where we stand today. We’re proud that we have the largest retail investor base of any company in the marketplace lending industry and are committed to expanding our offering so more retail investors can access Lending Club products. Over the past several months, we have focused on strengthening our business processes and steps were taken to enhance asset quality by increasing interest rates and tightening credit criteria for loans. We added some tremendous talent including Sameer Gulati (Chief Operating Officer), Tom Casey (Chief Financial Officer), Russ Elmer (General Counsel), Valerie Kay (Head of Institutional Investors), and Raman Suri (Head of Retail Investors). We also welcomed Tim Mayopoulos (President and CEO of Fannie Mae) to the Lending Club Board of Directors.”

Comment: Outstanding job at building such a team in so short. The only concern would be if the stage Lending Club’s is in matches this new “very large company” team’s experience. This team didn’t build those companies. However Lending Club is not a startup anymore. And it often takes a complete new type of team to take a company from 0 to $1mil in revenue, from $1m to $20m, from $20m to $100m and from $100m to $1bil. So I do think that most likely a “large company” team will turn Lending Club into a large company (with its processes, bureaucracy and more) and perhaps that is what LC needs.

“What we’re working on. For the remainder of 2016, we are focused on serving you better. We’re making investments in reporting, compliance and controls, technology, and the organizational foundation that will drive the next phase of growth.”

Comment: I find it a little vague and predictable.

Where we’re headed. We have ambitious long term goals. We aspire to allow every type of investor – individual retail and institutional investors – to participate in what we believe is a compelling product that can offer solid risk-adjusted returns. Many more investors of all kinds may benefit from adding Lending Club products to their portfolios, and we’re looking forward to proving that we deserve a place in their portfolios.”

Comment: Many retail investors are concerned that if they are left unprotected institutional investors will have better API connections and technology and they will be left with the notes no sofisticated investor wants.

“Some investors have asked me–after 20+ years at Barclays Global Investors and BlackRock, why did I join Lending Club ? I had the unique opportunity to be a part of the innovative team that created iShares, which today is the global market leader in ETFs. It took many years to grow the iShares business and show investors that it should be a big part of their investment strategy. I see that same parallel with the products we offer at Lending Club”

Comment: There is a tradeoff between salary and equity. Rarely will a salary be a life changing event however it makes people comfortable. People join startups to create a non-negligible probability of a life changing event via equity. They also join to give themselves a challenge when they may be bored. And often at startup/young companies the reward is more proportional to the value added and success.

Fines, Withdrawals, Job Cuts. It Was an Ugly Day for Global Banks, (Bloomberg), Rated: AAA

Comment:These news are critical for a few reasons. First it will affect interbank interest rates, which will propagate into all interest rates. Second, if banks who are top lenders like Wells Fargo have to cut cost they will also cut business lines. Which is a great door open for our industry. And last, if this gets worse, it may in fact be the beginning of a next Greece-like crisis , except affecting major economies.

Commerzbank Chief Executive Officer Martin Zielke announced plans Thursday to eliminate 9,600 jobs

In Washington, came still more blistering attacks on John Stumpf, whose grip atop embattled Wells Fargo & Co., the largest U.S. mortgage lender, remains tenuous amid the uproar over a scandal involving unauthorized accounts.

And then, back in Germany, came the bombshell: revelations that some hedge funds were moving to reduce their financial exposure to Deutsche Bank, now the biggest worry in global finance; sending its New York-listed shares down as much as 9.1 percent

The 38-company Bloomberg Europe Banks and Financial Services Index has tumbled 24 percent this year.

A Message from Prosper and Folio Investing, (Email, Prosper), Rated: AAA

We are writing to let you know that as of October 27, 2016, Prosper will no longer offer the Folio Investing Note Trader platform, the secondary market for Prosper Notes. Prosper has found over time that very few investors are using the secondary market and, as such, has made the decision to no longer offer this service. We apologize for any inconvenience that this causes. Prosper remains committed to its retail investor clients and to providing them a great experience.

Once the secondary market trading service is terminated, you will not be able to sell Notes that you own, and you will need to hold them to maturity.

JPMorgan Hires InvestCloud In Response to Silicon Valley Threats, (Fortune), Rated: A

JPMorgan Chase jpm said it had hired and would take a stake in InvestCloud, which provides software that makes online transactions easier for customers with banking and investment accounts. The InvestCloud deal is also part of Dimon’s commitment to spend $300 million over the next three years on digital improvements in asset management.

Starting early next year, the bank will use InvestCloud to customize website dashboards and mobile apps for clients ranging from individuals with investments of $1,000 to managers of family investment offices with $1 billion or more.

Single-Family Rental Research: Performance Summary – September, (Morningstar), Rated: A

Vacancies increased to 5.0% from 4.8% in July, the first time this metric has touched 5.0% since November 2015. This month’s Performance Summary tracks the performance of 23 single-borrower transactions and more than 90,000 properties. Rents for properties backing single-family rental securitizations in September rose by 5.1% from their prior contractual rents. Delinquencies were flat at 0.6%.

How startup bank Monzo is using a community-based marketing approach, (Tradestreaming), Rated: A

The startup, still in test mode, has added 40,000 new users in under a year by taking a completely open approach to building a product that fits the needs of its customers, which it inevitably calls “Monzonauts.” For instance, Monzo users can submit their needs to an online forum or sound off on Twitter. The company has put its entire product roadmap online, where users can vote on features they’d like to see. For example, a Monzo app for Android devices. After getting 232 votes, this feature rolled out this week.

On its forum, which launched in December, users share tips on things like using a Monzo card abroad. The posts that generate the most discussion in its forum are also included at monthly meetings.

Referrals aren’t new. But they have given Monzo’s word-of-mouth tactics a turbo boost. When users download the app they are added to its waiting list. Those who refer a friend to the service with a unique code are bumped up the queue by 4,000 places. “What we wanted was to get everyone on that list to feel excited about it,” Kursar said. In 48 hours, its landing page received 12,000 submissions.

“We don’t want to become the kind of company where every campaign has 100 different iterations ending with something aggressive that says ‘download, download, download,’” she added.
Author:

George Popescu

Week Six: FT Alphaville Fantasy Football League

We see little practical or political upside for the Justice Department to press Deutsche Bank for a penalty that is so large that it could destabilize the bank and provoke a new financial crisis. This is why we expect the penalty to be structured so the cash payout is less than the $14 billion that seems to alarm the market. We also believe both sides are incented to quickly reach a deal.

That’s via Jaret Seiberg of Cowen on why the Justice Department might — with a strong emphasis on *might* — try to find a way to pull its punches with Deutsche to avoid landing a knockout blow. While there is certainly some political upside to punishing big banks for their past wrongdoings, Seiberg argues there is a much bigger political downside to triggering a financial crisis (or being blamed for triggering a financial crisis). He thinks Treasury secretary Jacob Lew could be minded to “discuss the global ramifications of Deutsche Bank’s financial troubles” with the Justice Department, a scenario that if implausible is at least more likely than the Fed intervening, he writes.

Continue reading: Week Six: FT Alphaville Fantasy Football League

We see little practical or political upside for the Justice Department to press Deutsche Bank for a penalty that is so large that it could destabilize the bank and provoke a new financial crisis. This is why we expect the penalty to be structured so the cash payout is less than the $14 billion that seems to alarm the market. We also believe both sides are incented to quickly reach a deal.

That’s via Jaret Seiberg of Cowen on why the Justice Department might — with a strong emphasis on *might* — try to find a way to pull its punches with Deutsche to avoid landing a knockout blow. While there is certainly some political upside to punishing big banks for their past wrongdoings, Seiberg argues there is a much bigger political downside to triggering a financial crisis (or being blamed for triggering a financial crisis). He thinks Treasury secretary Jacob Lew could be minded to “discuss the global ramifications of Deutsche Bank’s financial troubles” with the Justice Department, a scenario that if implausible is at least more likely than the Fed intervening, he writes.

Continue reading: Week Six: FT Alphaville Fantasy Football League

Alphachat: Ryan Avent on the social capital of firms, development economics, and monetary policy

Ryan Avent is the Free Exchange columnist at the The Economist and the author of The Wealth of Humans, a new book about the challenges and opportunities presented by a world of labour abundance. (Mostly the challenges.)

If you want to listen to him comprehensively describe the book’s sweeping narrative, then you should totally check out his appearances on David Beckworth’s podcast, the Slate Money Gabfest, Strategy + Business, and the Bloomberg TV show What’d You Miss. You can also read his interview with Derek Thompson at The Atlantic and his guest column at The Guardian.

Continue reading: Alphachat: Ryan Avent on the social capital of firms, development economics, and monetary policy

Ryan Avent is the Free Exchange columnist at the The Economist and the author of The Wealth of Humans, a new book about the challenges and opportunities presented by a world of labour abundance. (Mostly the challenges.)

If you want to listen to him comprehensively describe the book’s sweeping narrative, then you should totally check out his appearances on David Beckworth’s podcast, the Slate Money Gabfest, Strategy + Business, and the Bloomberg TV show What’d You Miss. You can also read his interview with Derek Thompson at The Atlantic and his guest column at The Guardian.

Continue reading: Alphachat: Ryan Avent on the social capital of firms, development economics, and monetary policy