News

April 15th 2016, Daily News Digest

  • Banks raise rates on warehouse lines from 3% to 5% or higher.
  • Funding Circle’s 1st European Securitization, more details.
  • CFPB’s Assistant Director encourages consumer-friendly innovation.
  • Moody’s says European SME lending is healthy, especially in Belgium and France.
  • Federal Trade Commission organizing a forum on marketplace lending on June 9th in DC.
  • Updates on PHH vs CFPB case.
  • Bureaucracy vs chaos, and fast growing companies.

 

Online lenders seek safe haven capital, (Reuters), Rated: AAA

Online lenders are desperate to find new funding sources after setbacks with hedge funds and wobbles in the markets dented confidence in their ability to drum up fresh capital.

“Most people still think that for this industry to grow that securitization is essential,” said Vincent Basulto, a partner at law firm Richards Kibbe & Orbe focused on structured finance and marketplace lending.

“But you can’t always count on that market to be open when you need it.”

Wall Street banks have increased rates on warehouse lines to online personal lenders from the 3% range to 5% and even higher, one platform executive told IFR. “It happened in the last two months,” he said. “Really fast.”

Now, industry players say, online lenders are looking for less fickle funding sources including closed-end funds, family offices and pension funds.

Funding Circle to launch marketplace lending ABS in Europe, (EuroMoney), Rated: AAA

Comment: a lot of articles today on the Funding Circle securitization by Deutsche Bank. 

The deal, to be called SBOLT 2016-1, comes in the wake of a period of volatility in US marketplace lending (MPL) ABS after the placing of three junior tranches of Citi-originated CHAI (Citi Held for Asset Insurance) deals on watch for downgrade in February. It will be an interesting test of investor appetite for these assets in securitized form in Europe.

Funding Circle is due to meet investors in London for a series of one-on-one meetings on Monday, Tuesday and Wednesday (April 18-20) with a view to a potential sterling-denominated Reg S deal. Deutsche Bank is believed to have received a sizeable reverse enquiry into the senior tranche. Funding Circle declined to comment on the proposed transaction.

“We publish details of every loan on our website – there is real reporting. You can very quickly see what is going on. Our skin in the game is that we are totally transparent.”

In the US, total MPL ABS issuance now stands at $8.6 billion from 47 deals [29 of consumer loans, 11 of student loans and seven of small business loans] according to research firm PeerIQ.

Milestone for European P2P securitisation, (FT), Rated: AAA

Funding Circle has facilitated $2bn of loans to small and medium businesses since 2010. Its debut securitisation will be backed by £130m of loans and marketed early next week.

A report in February by the University of Cambridge and Nesta, an innovation charity, says banks and other institutions now account for a quarter of the lending on UK-based peer-to-peer websites. By evolving in this way, the UK is following the US sector, which is widely dubbed “marketplace” investing.

Cormac Leech, a peer-to-peer analyst at investment bank Liberum said the involvement of Deutsche Bank was “a strong endorsement for P2P credit quality”.

CFPB’s Jeffrey Langer lends perspective on marketplace lending, (Lexology), Rated: A

CFPB Assistant Director for Installment Lending and Collections Markets Jeffrey Langer began his remarks by summarizing the CFPB’s Project Catalyst initiative, which was designed to support and encourage consumer-friendly innovation pertaining to financial products and services, such as marketplace lending.

Langer, referencing the CFPB’s recently released consumer bulletin on online marketplace lending, commented that marketplace lending is a “young” industry with both potential benefits and potential risks.

Langer also expressed concerns about the industry’s agility in changing markets, opining that, “[i]t is unclear whether marketplace lenders’ have adequate loan servicing infrastructure or the ability to scale infrastructure quickly and effectively in the event of [an economic] downturn.”

Moody’s: European SME lending rising in tandem with higher demand, (Moody’s), Rated: A

“Lending to European SMEs is increasing in tune with a higher loan demand and credit availability, amid improving credit conditions both in terms of accessibility to financing and financing costs,”

Moody’s newsletter now provides data on European SME credit trends with the first time publication of its SME Dashboard, focusing on the macroeconomic environment, credit conditions and credit performance of European SMEs. European non-financial corporations continue to deleverage, which has led to a decline in credit-to-GDP ratios in selected countries to below their long-term average, reducing companies’ financial vulnerability. The data also show “SMEs have been taking advantage of increased availability of credit since 2014”.

Securitisations backed by loans to Belgian small businesses will be among Europe’s strongest performers.

A proposal to allow certain French investment funds to grant loans directly to companies, including SMEs, would be credit positive for asset managers with niche credit investment expertise because an expansion of their third-party assets under management will generate a larger, long-term stable stream of fee income.

FinTech Series: Marketplace Lending, ( Federal Trade Commission), Rated: AAA

Starting this summer, the FTC will host a forum series exploring emerging financial technology and its implications for consumers. The first FinTech Forum – scheduled for June 9, 2016 – will address marketplace lending.

The FinTech series will bring together researchers, industry representatives, law enforcement agencies, and consumer advocates for half-day discussion sessions focusing on consumer protection and emerging financial technology.

Location:

Constitution Center

400 7th St SW

Washington, DC 20024

United States

PHH/CFPB Battle to be Long and Arduous; PrimeLending and Mutual of Omaha’s JV, (Mortgage News Daily), Rated: A

“London’s banks that were once among the most coveted employers in the global financial system are struggling to fill top roles because potential penalties are seen to outweigh the perks….Bankers are concerned about regulations that could see executives thrown in jail for failing to spot serious misconduct on their watch, which has shifted the City of London’s reputation from a light-touch Babylon to a risky place to work. Combined with British politicians’ desire to name and shame, an unforgiving press and diminishing cash compensation, the nation’s banks have been left struggling to fill senior positions, lawyers and recruiters said.”

“This is the litigation where PHH appealed to the DC Circuit Court because the Bureau’s Director Richard Cordray raised an administrative law judge’s $6 million penalty for mortgage insurance kickbacks to $109 million. Here is one aspect of the litigation: the implications of the court’s view of an administrative agency led by a single director rather than the more typical commission structure. Entitled Going after the Big Cheese (PHH takes on CFPB’s Director),” Jonathan’s article is worth reading.

“The opening oral arguments in the PHH vs. CFPB case increased our conviction in the probability of a positive outcome for PHH. The CFPB’s argument was met by a clearly unsympathetic bench and our view is the U.S. Court of Appeals for D.C. is set to deliver PHH a victory. We think there is a 75% probability that the CFPB’s $103M increase to the original PHH fine will be substantially reduced or vacated entirely. Regardless of the appeals court decision, we think an appeal is likely. Link the audio recording of the hearing. (71 min)

“Beyond the direct impact on PHH, our view is that a CFPB loss in this case would force a near-term retrenchment of the bureau’s enforcement and rulemaking efforts which would be viewed positively for auto lenders, the entire mortgage complex, student loan servicers, and payday lenders. Furthermore, we believe that a CFPB loss in this case would significantly strengthen legislative efforts to shift the bureau’s leadership from a single director to a commission.

Octopus launches P2P product,( FT Adviser), Rated: A

Simon Rogerson, chief executive of Octopus Investments, said the firm designed Octopus Choice to address the scepticism and scarce uptake of P2P products among the advice community.

For advisers, concerns over the peer-to-peer industry revolve around credit underwriting systems, it not being covered by the compensation scheme and it not being tested during an economic downturn.

The product launches on the back of the recent launch of the Innovative Finance Isa, which has helped push peer-to-peer lending into the mainstream market.

Investments into Octopus Choice will initially be allocated to loans secured against residential property.

Tony Catt, compliance officer at Anthony Catt Limited, said: “This new fund is the first of its kind available in the UK and has as such they should be applauded.

“On the face of it, this should provide decent returns with being subject to the stock market.

£50,000 payout hope for P2P investors who feel badly advised, (Belfast Telegraph), Rated: A

Investors who feel they received bad advice about the merits of investing with peer-to-peer (P2P) lenders may be able to claim as much as £50,000 from the UK’s savings safety net.

To qualify :

The advice you received to buy the investment must have been given on or after April 6 2016;

The firm that advised you must have been authorised by the appropriate regulator to do so at that time;

You must have lost money as a result of the advice you were given;

The firm no longer has sufficient assets to meet claims for compensation.

Lendix wants to let small and medium businesses tap into the P2P lending revolution, (Rude Baguette), Rated: B

Comment: This article covers the French market.

Lendix is a small-medium enterprise lending platform in France in 2015 and won the 2015 Fintech Challenge organized by the Boston Consulting Group in London. It offers the possibility for SMEs to borrow directly from the general public through its online platform, allowing private investors to boost their savings at the same time.

Business owners already borrowed a total of €18M via Lendix since its creation in 2014. The company raised €7M in venture capital since 2015 from investors including Partech Ventures orWeber Investments.

Parent company of Founders Group International accused of fraud in China, (The State), Rated: A

The China-based company behind the purchases of 22 Grand Strand golf courses, several golf-related businesses and multiple other properties in the area is allegedly being investigated by authorities in China for possible fraud, according to several reports in Chinese publications and business websites.

Yiqian is the parent company in China of Founders Group International (FGI), which is operating its Myrtle Beach golf properties. Dan Liu is the president of Yiqian Funding and his partner in FGI, Xian “Nick” Dou, is the president of FGI.

The articles claim the alleged fraudulent business practices of Yiqian Funding involve U.S. golf course purchases and include a Ponzi Scheme, shell companies and internet fraud, and that at least two business offices in China have been raided and some company assets have been frozen.

Myrtle Beach Mayor John Rhodes has courted Chinese investments through eight trips to China, including a 16-day trip with Horry County Council Chairman Mark Lazarus early this year. They visited one of Liu’s Yiqian businesses in China, as well as with prospective investors in a proposed $100 million Chinese cultural village west of the Intracoastal Waterway.

[Bowen Press reports that as much as $1.5 billion U.S., or about $10 billion Chinese Yuan Renminbi, may be involved in the alleged fraud. The company is accused of defrauding investors by transferring money to a U.S. branch company that purchased golf courses, hotels, mansions and yachts and then re-sold the purchases back to Yiqian investors at inflated prices.

The China Business Journal reported that a source claims Yiqian, which does business in China under both its Mandarin name and the English name “Easy Richness,” is under suspicion of running a Ponzi Scheme, and is accused of establishing shell companies in the U.S., falsifying some company records and not having clear records to indicate how some investor money has been spent.

California Releases Marketplace Lending Data, (JD Supra Business Advisor), Rated: B

Comments: Fairly old data as it goes only up until June 30 2015.

The California Department of Business Oversight (DBO) has issued a summary report of aggregate data provided by the companies that responded to the DBO’s online survey sent to 14 marketplace lenders engaged in online consumer and/or small business lending (or other types of financing such as merchant cash advances). The survey sought information on loans made between January 1, 2010, and June 30, 2015, such as number of loans, annual percentage rates (APR), delinquencies, and investor information.

From 2010 to 2014:

  • consumer and small business transactions increased nationally from $1.99 billion to $15.91 billion
  • consumer financing grew from  $1.59 billion to $12.97 billion.
  • small business financing grew from $403 million to $2.94 billion.

Business: How to topple bureaucracy, (FT), Rated: AAA

The peer-to-peer lender, which is only six years old but now employs 570 staff, 280 outside the UK, has something else in common with all innovative, fast-growing enterprises: a preoccupation with bureaucracy.

As Funding Circle grows, he admits, so does structure and hierarchy.

The former head of Arm Holdings, the chip designer, says he is reworking Rolls-Royce’s “organisational software”. Volkswagen, hit by scandal, has halved the number of senior managers reporting directly to its chief executive, to speed up processes and streamline decisions.

Zappos, the shoe retailer owned by Amazon, is converting to Holacracy, a flatter system that does away with titles — though staff departures and tension have generated much bad publicity during the painful transition. Haier, the Chinese white goods company, laid off 10,000 middle managers in 2013 and 2014. It is transforming itself into an active shareholder overseeing a network of micro-enterprises that compete with each other for central resources.

Extrapolating from US Bureau of Labor figures,we estimate there are 12.5m surplus “bureaucrats” — managers and administrators — clogging up the US economy, as well as the equivalent of 8.9m “paper-pushing subordinates”, a figure based on the number of hours spent by non-managers carrying out chores “of questionable value”.

Redeploying these 21.4m people into “wealth-creating” work could, the authors believe, add $3tn to US annual gross domestic product.

Without such rails, companies can stray badly. Earlier this year, for example, Zenefits, a health insurance brokerage based in California, attracted adverse publicity and regulatory attention for its lax culture.

Dominic Jacquesson, director of talent at Index Ventures, a venture capital group, says that in his experience of helping start-up companies scale up, “chaos is the main problem”, not an excess of bureaucracy.

Running projects over shorter cycles also keeps the build-up of bureaucracy to a minimum. The approach is familiar to those who use so-called Agile software development methods and larger companies are experimenting with giving smaller teams more independence.

 

Author: George Popescu

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About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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