Monday September 26th 2016, Daily News Digest

Monday September 26th 2016, Daily News Digest

News Comments Main news: Jefferies-Loan Depot securitization breaks trigger; Lending Club’s fund 1st down-month; Funding Circle’s results; GLI’s results; Lufax signs banks for IPO. Main analysis: PeerIQ’s summary of last 9 months. Main thought provoking: The causes and effects of low rates, a must read Economist article; China’s number of p2p lenders will keep growing […]

Monday September 26th 2016, Daily News Digest

News Comments

United States

United Kingdom

Canada

Australia

China

 

United States

Internet Lender’s Bond Deal Starts to Sour a Year After Sale, (Bloomberg), Rated: AAA

Comment: I am not an expert in securitization, nor in investment banking. But it looks to me that Jefferies’ made securitization have by far the highest probability of breaking triggers. This is very strange. See Circle Back and OnDeck’s. And now LoanDepot’s. 

Online consumer loans made by LoanDepot Inc. are going bad faster than underwriters expected, threatening payments to investors who bought bonds backed by those debts less than a year ago.

Cumulative losses rose to 4.97 percent in September, breaching the 4.9 percent “trigger” in the $140 million securitization that Jefferies Group assembled last November and sold to investors that now include the Catholic Order of Foresters, according to data compiled by Bloomberg. Bondholders in the riskiest portion of the deal who may see funds diverted couldn’t be identified because the offering is private.

LoanDepot, which for years has specialized in traditional mortgage banking, began making small consumer loans over the internet last year.

Jefferies has been a lead underwriter of other securitizations backed by loans made by online startups, and at least two of its deals, for CircleBack Lending Inc. and OnDeck Capital Inc., have also breached their triggers. Those include Marketplace Loan Trust 2015-CircleBack 1 and Marketplace Loan Trust 2015-OnDeck 3.

CircleBack Lending hired Jefferies to explore a sale, people familiar said in June, as funding for online-finance companies tightened amid concern about loan performance.

LoanDepot aborted a planned initial public offering last November and turned to other sources of funds, including a $150 million term debt financing completed in August. The company says it recorded 80 percent year-over-year average annual growth from its founding in 2010 to 2015, funding more than $70 billion of loans. Second-quarter fundings reached almost $10 billion in home, personal and home equity loans, the company said.

“Mark-to-market” from Q1’s ABS West to Q3 ABS East, (Peer IQ email), Rated: AAA

This past February, at ABS West, conversations centered on deteriorating collateral performance and liquidity concerns. A steady flow of negative headlines–Madden-Midland, negative ratings actions, San Bernadino, platform layoffs, and global slowdown concerns–weighed heavily on investor sentiment.

Two events marked the peak of investor apprehension:
In the bond market, the pricing of CHAI 2016-PM1 (PeerIQ analysis here) where Mezzanine bonds delivered greater returns than the whole loans themselves.
In the equity market, investor capitulation after the Lending Club May 9th disclosures.

Turning of the Tide

Global credit markets began to firm in April. Lending Club tightened DTI criteria, elevated the role of the capital markets function, and strengthened leadership on the board and executive team.

In May, the US Treasury report published “Opportunities and Challenges in Marketplace Lending”–a constructive regulatory development. Treasury acknowledged the role of securitization in funding growth, and consistent with the PeerIQ RFI, recommended the need for standardized reps & warranties, consistent reporting standards for loan origination data, loan securitization transparency, and consistent market-driven valuation standards.

SoFi achieved a AAA rating for an MPL bond and cracked open the MPL ABS investor market to global investors via its hands-on marketing approach.

PeerIQ observed that secondary ABS spreads continued to tighten despite volatility in the equity markets. PeerIQ also observed in the Q2 tracker that the combination of stricter underwriting, higher coupons, and tighter secondary ABS spreads meant the conditions for securitization were strong.

In June, SoFi brought to market its first rated

LendingClub Fund Has First Negative Month on Valuation Overhaul, (Bloomberg), Rated: AAA

A LendingClub Corp. investment fund that’s struggled with withdrawals this year posted a negative return for August, the first decline in its five-year history, after overhauling how it values holdings and incurring losses on riskier debts.

The fund, overseeing about $700 million at the start of the month, had disclosed plans earlier in the summer to overhaul how it tracks assets. It enlisted outside valuation firm Duff & Phelps Corp. and shifted methodology to forecast how debts will perform individually, rather than in groups. August marked the first month under the new system, resulting in a one-time 0.95 percent reduction to returns, Sanborn wrote.

The LC Advisors Broad-Based Consumer Credit Fund ended the month down 0.49 percent, cutting this year’s net return to 1.24 percent, LendingClub Chief Executive Officer Scott Sanborn told stakeholders in a letter and report Friday.

In June, the investment vehicle was forced to limit redemptions after stakeholders asked to pull out $442 million, or 58 percent of assets under management.

But in the case of the August slump, key developments had already been signaled, with the largest hit coming from a one-time adjustment as the firm improved how it values holdings, Sanborn wrote in the letter.

In the future, “investors should expect more movement in fund returns month-over-month because the new methodology is more responsive to changes in each individual loan’s delinquency status,” he said.

Global P2P (Peer-to-peer) Lending Market Analysis 2016 Forecasts to 2021, (News Maker), Rated: A

Comment: this article is promoting a report.

The analysts forecast the global P2P lending market to grow at a CAGR of 53.06% during the period 2016-2020. To calculate the market size, Technavio considers the lending amount through P2P platforms in the Americas, Asia Pacific (APAC), and Europe, the Middle East, and Africa (EMEA).

Low pressure, (The Economist), Rated: AAA

Interest rates are persistently low. First we ask who or what is to blame. Then we look at one outcome: a looming pensions crisis.

On September 21st the Federal Reserve kept its target for overnight interest rates at 0.25-0.5% but indicated that, after raising the target for the first time in a decade last year, it hoped to raise it for a second time soon—possibly in December, after America’s presidential elections.

Earlier that day, the Bank of Japan (BoJ) said it was staying with its target of raising inflation to 2%. Indeed it went further. The bank said it would continue to buy bonds at a rate of around ¥80 trillion ($800 billion) a year, until inflation gets above 2% and stays there for a while. To help meet this “inflation-overshooting commitment”, the bank said ten-year-bond yields would remain at around zero.

The debt-laden are delighted with the persistence of a low-rate world. It costs much less to service their obligations. But savers are increasingly grumpy. Economists are simply baffled. In the 1980s and 1990s, the high real cost of borrowing (ie, after adjusting for inflation) was the puzzle. Today’s interest-rate mystery is more troubling and there is division over the reasons for it.

One side says it is simply the consequence of the policies pursued by the rich world’s central banks. The Fed, ECB, BoJ and Bank of England have kept overnight interest rates close to zero for much of the past decade. In addition, they have purchased vast quantities of government bonds with the express aim of driving down long-term interest rates.

It is hardly a mystery, on this view: central banks have rigged the money markets.

On the other side of the divide are those who argue that central banks are merely responding to underlying forces. In this view the real interest rate is decided by the balance of supply and demand for the pool of global savings. The fall in interest rates since the 1980s reflects a shift in this balance: the supply of savings has increased as demand for it has crashed.

This ongoing glut in savings is due to two factors in particular. The first is changing demography, mostly in the rich world but also in some emerging markets. Populations are aging. At the same time, the average working life has not changed much. So more money has to be squirreled away to pay for a longer retirement (see article).

A second, related, factor is the integration of China into the world economy. “A billion people with a 40% savings rate; that brings a lot more supply to the table,”

Aging is not the only long-run influence that has tilted the savings-investment scales. By skewing income to the high-saving rich, an increase in income inequality within countries has added to the saving glut. A fall in the relative price of capital goods means fewer savings are needed for a given level of investment. Both trends predate the fall in real interest rates, however, which suggests they did not play as significant a role as demography or China.

A related reason for more saving is fear. The severity of the Great Recession belied the relative economic stability that preceded it.

Consider the business of life-inssurance companies. They pledge to pay a stream of cash to policyholders, often for decades. This promise can be likened to issuing a bond. Insurance firms need to back up these promises. To do so they buy safe assets, such as government bonds.

The trouble is that the maturities on these bonds are shorter than the promises the insurers have made. In the jargon, there is a “duration mismatch”.

When bond yields fall, say because of central-bank purchases, the cost of the promises made by insurance companies goes up. The prices of their assets go up as well, but the liability side of the scales is generally weightier (see chart 4). And it gets heavier as interest rates fall. That creates a perverse effect. As bond prices rise (and yields fall), it increases the thirst for bonds. Low rates beget low rates.

If a growing bulge of middle-aged workers is behind the secular decline in real interest rates, then the downward pressure ought to attenuate as those workers move into retirement. Japan is further along this road than other rich countries. Yet its long-term real interest rates are firmly negative.

A concern is that as more people retire, and save less, there will be fewer buyers for government bonds, of which less than 10% are held outside Japan. Another of the Geneva Report’s authors, Takatoshi Ito of Columbia University, reckons there will be a sharp rise in Japanese bond yields within the next decade. There may be political pressure on the Bank of Japan to keep buying bonds to prevent this.

Swedish FinTech Klarna Partners with SAP on Whirlwind Three-Month Business Overhaul, (PR Newswire), Rated: A

SAP announced today that Klarna, has become the first customer to go live with smart accounting for financial instruments (smart AFI), a new functionality based on the SAP® Bank Analyzer set of applications, 9.0 release. In just three months SAP implemented the solution including accounting rules configuration, data integration and a full setup of the SAP HANA® database environment, proving that up-leveling market and product growth does not have to be a long and arduous process.

 

United Kingdom

Global expansion almost doubles losses at fintech unicorn and peer-to-peer lender Funding Circle, (City A.M.), Rated: AAA

The peer-to-peer lending group is set to post a full-year loss of £36m when it publishes its accounts on Tuesday, after expanding into Europe and the US ate into profits. However, revenues at the firm, which was founded in 2010 and has lent more than £1.5bn to small and mid-sized businesses, rose 140 per cent from £13m to £32m last year.

“We expect our UK business to be profitable in the fourth quarter of 2016 and to generate significant cashflow in 2017 to finance international operations” said chief executive Samir Desai.

In 2015 the company raised $150m (£116m) of new equity for the business and listed the first and only single platform investment trust – the £150m Funding Circle SME Income Fund – on the London Stock Exchange.

GLI Finance Limited Unaudited Interim Results for the six month period ended 30 June 2016, (Email), Rated: AAA

Full report can be found here.

Highlights

  • The Company losses for the period were GBP6.9m (June 2015 profit of GBP5.3m), impacted by GBP13m write downs in investments in underperforming or liquidated platforms following the strategic review;
  • Group organized with Three Pillars to improve operational focus and assist reporting our strategy;

Pillar One

  • Sancus BMS Group on a pro forma* like for like basis, increased consolidated revenues from GBP2.7 million in H1 2015 to GBP4.0 million in H1 2016. The period was notable for the consolidation of the Sancus group and its amalgamation with BMS and Platform Black to establish our specialty lending business.

Pillar Two

  • Valuations in our prioritized platforms, The Credit Junction, LiftForward, Funding Options and Finexkap increased by GBP5.5m in aggregate. Investments in underperforming or liquidated platforms were written down by GBP13m. We have been very prudent in reorganizing this portfolio and we fully expect to see value of this portfolio build materially in future periods;

Pillar Three

  • Amberton Asset Management remains de minimus and we expect to make progress on this pillar in the next 12-18 months;

Group

  • As a consequence of the considerable restructuring in the period together with writedowns in Pillar Two, the Net Loss for the period on the GLI Measurement Basis** was GBP10.3m (H1 2015: Net Profit of GBP0.2m).
  • As a consequence of making early write-downs and recognizing losses in underperforming assets, together with raising capital and reorganizing Sancus BMS Group, the Companies’ balance sheet is significantly strengthened. Nonetheless, during the period the Company Net Asset Value “NAV” per share decreased from 42.73p to 37.07p;
  • Company debt to gross asset ratio is 30% (31 December 2015 33%)
  • Company Net Assets have increased in the period from GBP98.2m to GBP105.6m and;
  • The Company’s weighted-average cost of debt decreased from 8.6% (year to 31 December 2015) to 6.8% (period to 30 June 2016).

Post period end

  • Ordinary share placing raised GBP7.1m from Somerston Group in August 2016;
  • New wholly owned subsidiary, FinTech Ventures Limited (“FVL”), created to hold, initially, the four Prioritised FinTech platforms thereby enabling independent capital raises to support these investments.
  • Name change of GLI Alternative Finance Limited Plc to the SME Loan Fund (“SMEF”) on 1 September 2016.

Zoopla partners with Landbay for P2P lending solution, (Financial Reporter), Rated: B

The new channel on the Zoopla website includes a peer-to-peer lending solution, in partnership with Landbay, where anyone can invest from as little as £100 into buy-to-let mortgages, statistically the lowest risk form of peer-to-peer lending.

Canada

Financeit expands management team by tapping CFO from Capital One Canada, (Morningstart), Rated: A

This addition to Financeit’s management team will help propel the Toronto-based company into its next stage of maturity as it continues to expand its market share in the point-of-sale financing industry.

With 20 years’ experience managing and leading finance teams in Canada and the United Kingdom, Hanning served as Capital One Canada’s Chief Financial Officer for nearly five years. Prior to becoming CFO, Hanning held various senior positions within the bank’s Canadian and United Kingdom operations over the previous 12 years. He started his career at Glenfield Hospital NHS Trust in Leicester, United Kingdom.

Hanning’s entry into Financeit comes on the heels of the company’s $339 million acquisition of TD Bank Group’s indirect home improvement financing assets in partnership with Concentra.

Australia

Beyond Bank Australia and SocietyOne announce key partnership, (PR Wire), Rated: A

Beyond Bank Australia is continuing its expansion into the fintech sector, forming a significant partnership with the nation’s leader in marketplace lending, SocietyOne.

The agreement sees Beyond Bank tip in $1.5 million for an equity stake in SocietyOne as well as increasing its existing funding commitment in personal loans to $10 million. The arrangement was formalised on Friday, September 23.

SocietyOne now has ten mutual banks and credit unions among its 200 investor funders and is actively engaged with a number of other potential investors as it undergoes further expansion, targeting a 2-3 percent share of the $100 billion consumer finance market by 2021.

China

P2P lender Lufax taps four banks for Hong KongIPO, (China Daily), Rated: AAA

CITIC Securities, Citigroup, JPMorgan and Morgan Stanley have started preparatory work,although no formal mandate has been awarded, the people said.

The volume of Chinese P2P loans stood at 680.3 billion yuan ($102 billion) at the end ofAugust, more than 20 times levels seen in January 2014, according to industry data providerWangdaizhijia.

One third of China’s 3,000 peer-to-peer lending platforms ‘problematic’: new report, (SCMP), Rated: A

The 2016 Blue Book of Internet Finance, published on Friday, found 1,263 of the P2P platforms on the mainland up to the end of 2015 were problematic, which included cases of fraud or firms going out of business.

This total included 896 P2P platforms that got into problems in 2015, with more than half involved in fraudulent tricks that took advantage of loopholes in regulations, the report said.

“China’s slow economic growth has led to plunging business for small and medium-size companies; It increases the risk of loan defaults,” the report said, adding that the risk of financing usually rose after accumulating over a long period.

In one typical case of fraud, highlighted in the report, one P2P platform, Rong Zuan Dai, went online in November 2015 and published 37 financing projects that promised high interest rates to hundreds of investors. But after two weeks the website suddenly closed.

Of the current total, Guangdong province had the largest concentration of P2P platforms, with 18 per cent of the national total, the report said.

It estimates that the number of P2P platforms nationwide will continue to rise at a rate of 90 per cent over both of the next two years as the industry further consolidates, and could eventually reach 10,000.

The number of active users of P2P is also expected to surpass nine million in 2016.

Author:

George Popescu

August 3rd 2016, Daily News Digest

August 3rd 2016, Daily News Digest

News Comments Today’s news are focused on the monthly volume data published below. In the UK we see the 1st crowdfunding platforms slowdown in five years. And in China, we learn that P2P platforms, apparently, need to have a very tough to get bank relationship to continue doing business in 18 months. International July 2016 […]

August 3rd 2016, Daily News Digest

News Comments

  • Today’s news are focused on the monthly volume data published below. In the UK we see the 1st crowdfunding platforms slowdown in five years. And in China, we learn that P2P platforms, apparently, need to have a very tough to get bank relationship to continue doing business in 18 months.

International

  • July 2016 volume numbers are in. We made a list of companies who stand out either for good growth or major decrease. Notice : we can not guarantee the accuracy of the volume numbers.

United States

United Kingdom

Australia

New Zealand

China

International

International P2P Lending Marketplaces – Loan Volumes July 2016, (P2P-Banking), Rated: AAA

P2P Banking publishes monthly volumes for p2p lenders.  Please note that the information is not guaranteed and P2P Banking has made relatively large mistakes in the past. Example: LendInvest in May 2016 was reported as a 80% decrease from April while as it was not the case.

For July 2016: Zopa leads ahead of Funding Circle and Ratesetter. Assetz Capital and Lendinvest achieved a big surge in volume. The total volume for the reported marketplaces adds up to 341 million Euro. I track the development of p2p lending volumes for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Comments:

Negative stand out:

  • LandBay decreased 62% 
  • Folk2Folk 38% 
  • Kokos -90% 
  • ThinCats -37% 
  • Wellesley -33% 

Positive stand out:

  • Assetz Capital +460% , 13.9m EUR/month origination last month.
  • Funding Circle +1% vs same month last year.
  • LendInvest +14% vs last year’s month.
  • Mintos +523% vs last year’s month and last month volume of 6.9m EUR
  • MoneyThing +462% and last month volume of 3.6m EUR
  • Twino 7.2m EUR last month and huge growth

 

 

 

United States

National Charter May Be the Devil Marketplace Lenders Don’t Know, (Bloomberg BNA), Rated: A

For some online marketplace lenders, the devil they know might look better than the devil they don’t when it comes to proposals for federal bank regulators to issue national charters to financial technology companies.

The issue surfaced in March, when Amy Friend, senior counsel for the Office of the Comptroller of the Currency (OCC), said at a conference in Washington that the agency had fielded inquiries from fintech companies about obtaining a national charter tailored to their needs. Since then, the concept has come up repeatedly at industry conferences and elsewhere. At an OCC-sponsored event in Washington June 23, for example, Maryann Kennedy, deputy controller for large bank supervision, said the agency was forming a committee to examine the question.

A charter for a non-bank fintech company that provides financial services would be modeled to some degree on the charters the OCC issues to banks. A key feature of the bank charters that a marketplace lender potentially would value is “pre-emption:” A national charter would establish a single set of nationwide standards that a company would have to meet, overriding the necessity of complying with an array of state standards.

The danger in a national charter is that it would effectively represent the law of the land, with little or no room for maneuvering by the lenders.

Much of the testimony at the July 12 hearing involved a separate issue agitating marketplace lenders: whether federal regulators should continue to treat loans of $100,000 or less to small businesses — loans that make up the overwhelming majority of small-business borrowing — as business loans, or to treat them as consumer loans, which are subject to many more rules on disclosure and other factors.

The OCC has not disclosed what might be regulated by a national fintech charter, nor little else about its ongoing evaluation. The agency also has not said if it will decide to offer the charters, or when it might make that decision.

Negative interest rates creating increased anxiety, (Bloomberg), Rated: AAA

Sovereign bonds are supposed to be the safest investments in the world, but according to Bill Gross, one of the best-known investors in the world, sovereign bonds are now too risky:

[Begin quote]”Sovereign bond yields at record lows aren’t worth the risk and are therefore not top of my shopping list right now; it’s too risky. Low yields mean bonds are especially vulnerable because a small increase can bring a large decline in price.”[End quote]

This was supported by a release from Fitch Ratings:

[Begin quote]”This year’s dramatic fall in yields on bonds issued by investment grade sovereigns has again raised the risk that a sudden interest rate rise could impose large market losses on fixed-income investors around the world, Fitch Ratings says. A hypothetical rapid reversion of rates to 2011 levels for $37.7 trillion worth of investment-grade sovereign bonds could drive market losses of as much as $3.8 trillion, according to our analysis.”[End quote]

Most people look at the stock market, and think that everything is rosy, but there’s a lot going on that isn’t reflected in the stock market. In 2007, it was the collapse of the real estate bubble and, more importantly, the disastrous collapse of collateralized debt obligations (CDOs) backed by subprime mortgages. The disaster had already occurred before the stock market started falling.

Bloomberg columnist Lisa Abramowicz on TV on Wednesday commented on the warnings from Bill Gross and Fitch (my transcription):

[Begin quote]”There’s a high level of concern about how sustainable all of this is – when profits are declining, when you have growth slowing, when you have stimulus efforts that are not working and that are running out of steam — how long can this last? But at the same time, it’s very hard to see what could reverse it. The only thing that people possibly can point to is inflation, or if some country decides not to pay back their debt, or just forgive it, or come up with some kind of engineering that creates a technical problem.”[End quote]

According to Abramowitz’s contacts, the only thing that can stop the current plunge in bond yields is for some country to decide not to pay back their debt — essentially to declare sovereign bankruptcy. In other words, there’s a major financial crisis coming no matter what.

Medallion Financial Corp. Reports 2016 Second Quarter Results, (Business Wire), Rated: AAA

Medallion Bank anticipates entering into a new line of business developing relationships with marketplace lending platforms.

Consumer loans originated by Medallion Bank were stronger than expected. In June alone, nearly 2,500 loans were funded for over $45 million in volume
Medallion Bank’s six month’s earnings increased by 39%
Managed assets reached $1.760 billion, including $1.159 billion at Medallion Bank, both all-time highs

Man claims Marlette Funding LLC made harassing phone calls to collect alleged debt, (West Virginia Record), Rated: A

Jeffrey Warren filed a complaint on July 7 in the U.S. District Court for the Southern District of West Virginia against Marlette Funding LLC alleging violation of the West Virginia Consumer Credit and Protection Act and the Telephone Consumer Protection Act and other counts.

The plaintiff requests a trial by jury and seeks compensation for all damages, costs of litigation, attorney’s fees and such other relief as the court shall deem just and proper. He is represented by Daniel Armstrong and Benjamin Sheridan of Klein & Sheridan LC in Hurricane.

Banks are rolling out personalized customer experiences, (Tradestreaming), Rated: A

Customer satisfaction with big banks has surpassed levels with midsize banks for the first time this year.
17 percent of large banks reported implementing contextual, personalized insights and solutions to consumers.

Considering the high cost, it isn’t surprising that big regional or national banks have the lead in this arena. 17 percent of big regional or national banks reported implementing contextual, personalized insights and solutions to consumers, compared to only six percent of community banks and 2 percent of credit unions, according to Digital Banking Report’s  The Power of Personalization in Banking. More than 50 percent of each category reported having a basic level of digital prowess with plans to increase future investments in digital.

There are some estimates of ROI on digitization of banking services. McKinsey identified several areas of digitization that drive more profitability than others. These areas include product back office automation, digitization of document management, automation of credit decisions, and big data analytics applied to sales campaigns.

What brokers lost by focusing so much on the desktop experience, ( TradeStreaming), Rated: A

Sticky products build engaged audiences.

That’s why Yahoo Finance continues to get a firehouse of traffic. For those of us who built our portfolios on the site ten or more years ago, that’s enough of a reason to go back. We’ve invested enough of our time and energy into the service that leaving it becomes difficult.

The thing is, as internet usage has shifted from desktop to mobile, so should trading volumes.

It isn’t enough for a broker to just recreate a web experience on mobile, either. Today’s users don’t want non-native apps. People want to feel that an app is trustworthy and vetted through the Apple Store. According to comScore, 87 percent of all time spent on mobile in the U.S. was spent in mobile apps.

United Kingdom

Brexit blamed for fall in crowdfunding deals, (FT), Rated: AAA

Crowdfunding platforms have experienced a slowdown in deal flow for the first time in five years, in a sign that “armchair investors” are taking a more cautious approach to alternative investments.
However, the number of investments offered online fell 17 per cent in the first half of 2016, compared with levels seen in the last half of 2015, according to research company Beauhurst. The fall follows 10 consecutive half years of growth in terms of the number of deals offered to investors.

Beauhurst’s head of research Pedro Madeira said the slowdown in crowdfunding was “particularly noteworthy”.

Beauhurst’s data also show that venture capital and private equity firms slowed investment into UK start-ups and high-growth companies in the same period.

Bruce Davis, spokesman for the UK Crowdfunding Association (UKCFA), the trade body of crowdfunding platforms, said the dip in deals offered was just “a pause”. The UKCFA said it was confident deal numbers would begin to grow again.

RateSetter to close 3-year market, (Alt Fi News), Rated: AAA

RateSetter says that demand for its 5 year product is the primary impetus behind the planned closure. The 3 year market has become less and less popular ever since the platform introduced its 5 year offering, and now accounts for less than 5 per cent of new investments. The company says that investors have voted “with their wallets” and that they clearly prefer to lend in the 5 year market. The 5 year market currently pays a rate of 5.7% per annum, with the 3 year sitting at 4.0%.

TISA launches P2P forum, (Mortgage Finance Gazette), Rated: A

The Tax Incentivised Savings Association (TISA), the trade association working with the retail financial services industry, has launched a peer-to-peer lending forum to enable those in the sector to develop policy recommendations for regulators and legislators, address operational challenges and determine best practice.

Initially the peer-to-peer forum will concentrate on four key areas:

-Building an effective dialogue with the FCA, HMRC and HM Treasury

-Developing standardised terminology, operational technology, data governance principles and best -practice

-Enhancing accessibility to the sector by improving the understanding of intermediaries, discretionary managers, consumers and related parties including PI insurers

-Identifying unintended regulatory and technical blockages – for example in relation to the inclusion of P2P within SIPPs – and proposing solutions

Fintech investor joins Fidelity’s venture push, (Financial News), Rated: A

A former fintech investor at Accel Partners, who was involved in high-profile investments in WorldRemit and Funding Circle, has joined the London-based proprietary investment arm of Fidelity International as it seeks to strengthen its European business.

GLI Finance Hires Two Senior Executives, (Crowdfund Insider), Rated: B

GLI Finance Limited (LSE:GLIF) has announced the hiring of two senior executives. Russell Harte has been appointed Chief Operating Officer and Steven Simpson has been selected as the Head of Group IT.

Harte is a Chartered Accountant with extensive general management experience. His recent roles have included being Finance Director of Liberty Holdings Limited, a JSE listed long-term insurer, where he played a key role in the turnaround of that business. Most recently he was CFO of Standard Bank Jersey Limited. Simpson is currently Head of IT at one of GLI’s subsidiaries Platform Black.  He has over 25 years of experience in the design, implementation and administration of secure and highly-available enterprise and web-based solutions for corporate customers across various sectors including finance and telecoms. Russell and Steven will join the senior management team. Russell will report to the Group CEO and Steven will report to Russell.

GLI has been going through a period of change as Whelan took over the Chief Executive role at the very beginning of 2016.

Australia

Disruptive partnership forms between two Australian platforms, (Alt Fi), Rated: A

ThinCats Australia has joined forces with DomaCom, a soon to list real estate equity investment platform.

The partnership will involve using ThinCats loans in order to gear properties on the DomaCom platform. This may be the first time that a peer-to-peer lending company and real estate equity investment platform have collaborated in this way.

The ThinCats partnership may also open up future investment opportunities for investors across the two platforms. Naoumidis said: “This also provides the 350 lenders on the ThinCats platform the opportunity to gain exposure to property assets and the ability to lend funds at an attractive interest rate with a lower risk profile.”

New Zealand

Profiling the typical ‘peer-to-peer’ investor, (Stuff), Rated: A

Investor Tom Enright was the first person to invest through LendMe, a peer-to-peer property lender.

He invested $542,000 by funding a fully-secured residential mortgage loan on an Auckland property, getting a 7.84 per cent return on his money.

There are four peer-to-peer businesses: LendMe  (direct secured property lending), Harmoney  (unsecured personal loans), Squirrel Money (diversified secured property lending), and Lending Crowd (focus on secured car lending). Harmoney is by far the biggest peer-to-peer lender with $275m of loans made.

Figures from Harmoney  show most peer-to-peer lenders are 50 or under, with 41 being the average age.

REASONS TO BE A PEER-TO-PEER INVESTOR

Harmoney says people invest in peer-to-peer because:

– They are looking for an investment that could offer regular repayments over time. This includes people trying to generate income to live off

– They are spreading risk by putting a percentage of their portfolios into consumer lending.

– They understand they are taking the risk of a loan defaulting, but believe the risk is manageable and the return fair.

– They enjoy the process of lending.

China

Failing Grade: Many Chinese P2P Lenders Do Not Meet Government Requirements, (Crowdfund Insider), Rated: A

According to ECNS, the majority of P2P platforms have not yet established a relationship with a bank as a fund depository agent. Even though 149 P2P sites had signed agreements with banks “few had materialized.” Overall only 48 P2P lenders or just 2% of these online lenders have qualified, according to  Shanghai Ying Can Investment consulting.  These 48 platforms were some of the largest platforms in the country. These same platforms are poised to benefit by the additional regulatory scrutiny as undercapitalized and poorly managed P2P lenders may leave the market.

Chinese regulators are allowing a transitional period of 18 months for P2P lenders to adopt the new requirements. It will be interesting to see what happens after that.

P2P Finance in China: Why Firms Need Better Risk Controls, (Knowledge @ Wharton, UPenn), Rated: AAA

Since 2015, many P2P platforms including Ezubao, the Dada Group, the Kuailu Group, the Zhongjin Group and others have been charged with illegal fundraising, involving tens of billions of yuan. This is not confined to China. In May, the U.S. Treasury Department released a report criticizing the peer-to-peer (P2P) lending business and recommended it be more tightly regulated.

According to the industry website WDZJ.com, China’s P2P online finance industry reached 2.036 trillion yuan (about $300 billion in transaction volumes) by the end of May 2016. It took seven years to reach its first trillion yuan and just seven months to reach the second trillion.

Take the Lending Club in the U.S., for example. It originally hoped to evaluate personal risk based on data extracted from Facebook, Twitter and other social platforms. That is in America, which has much more sophisticated credit investigation and personal data systems than in China. So you can imagine a large amount of P2P business based on personal credit in China will meet trouble in operation if there is no appropriate risk control system in place.

“There is one feature of the finance industry — the one that grows the fastest, will also collapse the fastest.”

Author:

George Popescu