News

March 17th-18th 2016, News Digest, Lending Times

 

  • People praying for a perfect storm of positivity for the LC stock.
  • Stress test model from potential RE market correction coming from Squirrel’s offering in NZ.
  • Moody’s justifying their marketplace lending ratings.
  • Morgan Stanley bullish on marketplace lending with a lot of ABS numbers.
  • CHAI deals moving from Moody’s to Kroll?
  • SME lenders making a dent.
  • Asia-Pacific alternative finance excluding China growing at 313%/year.
  • Public UK fund forced to use leverage for 10% yield?

Peering into peer-to-peer: lack of understanding affecting post-IPO prices, (Banking Tech), Rated: AAA

Lending Club had a market capitalization of $10.1 billion when it first listed, yet today it sits around the $3 billion mark. As with the succession of bad news, the conditions are also there to create a “perfect storm of positivity” and ensure that Lending Club and many other P2P lending firms will become an everyday staple of our financial services industry.

 

Squirrel Group, the mortgage broker, and peer-to-peer lender, cites an Auckland housing market correction that could significantly slow sales as a risk to its $4.97 million private equity crowdfunding offer currently under way. If a housing correction occurs, it has modeled a 40% reduction ($400 million) in forecast volumes and a 25% drop in settlements per adviser for the 2017 financial year.

Comment: Interesting stress test on real-estate market correction for NZ, probably applicable elsewhere. 

 

Moody’s: Underwriting of marketplace consumer lending platforms is untested through stressed economic cycles and poses unique credit risks, (Moody’s), Rated: AAA

Marketplace lending consumer loan pools are unseasoned due to the relatively recent growth of this lending channel in Europe. Moody’s report, entitled “Underwriting of Marketplace Lending Platforms Poses Unique Credit Risks and Is Untested Through Stressed Economic Cycles,” is available on www.moodys.com at the URL: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1016127

 

Marketplace Lending Witnessing Exponential Growth: Morgan Stanley, (Value Walk), Rated: AAA

Very complete article on Asset Backed Securities market. Marketplace lending: auto and credit card ABS print positive total returns. The analysts highlight that the severity of the increases in delinquencies for both prime and subprime deals rose, touching 49% and 58% in the Prime and Subprime pools respectively. Delinquency rates remain on a downward trajectory thanks to healthy consumer balance sheet fundamentals and improving prospects for wage growth being supportive of consumption growth. Highlighting delinquencies in student loans, the MS analysts point out that in recent years, Private student loans exhibited lower 60+ delinquencies.

Marketplace-lending

 

Kroll Bond Rating Agency Assigns Preliminary Ratings to Citi Held for Asset Issuance 2016-PM1, (Business Wire), Rated: A

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Citi Held for Asset Issuance 2016-PM1 (“CHAI 2016-PM1”). This is a $278.4 million consumer loan ABS transaction that is expected to close on March 31, 2016. This transaction represents the fourth CHAI securitization collateralized by unsecured consumer loans originated under the online marketplace lending platform operated by Prosper Funding, LLC (“Prosper” or the “Company”).

Comment: According to my limited research there is no public information on Moody’s rating the CHAI 2016-PM1 deal ( despite rating the previous CHAI deals). Maybe due to “Moody’s places on review for downgrade marketplace lending ABS issued by Citi Held for Asset Issuance“. Kroll was created in 2011 and is challenging the loss of trust in the big 3 credit agencies. Taking on the Ratings Triopol.

 

Non-bank lenders making in-roads in SME market but challenges remain,(Smart Company), Rated: AAA

The Scottish Pacific SME Growth Index highlights two significant trends in how SMEs are financing their businesses.

Firstly, the big four bank stranglehold on the SME segment is loosening with non-bank lenders starting to make inroads. Of the businesses surveyed by Scottish Pacific, 32.1% of SMEs borrow directly from their main relationship bank, down from 38.6% last year. In comparison, non-bank lending demand has risen from 13.6% of SMEs to 16.4%.

Other reasons why SMEs are finding non-bank lenders attractive include fewer loan conditions and covenants, the ability to talk to people and faster decision making.

The survey found fewer than 5% of SMEs keep an active eye out for the credit facilities that best suit their business.

The inaugural Banjo Small Business Survey released last month by Banjo Loans, an online unsecured SME lender, revealed only 16% of SMEs are aware of marketplace lenders and only 3% used one in 2015.

17% of SMEs regularly swipe their own card to cover funding shortfalls at exceedingly high consumer credit rates above 20%, while one in two SMEs occasionally support their own business using personal finance facilities.

 

Exhilway Limited Initiates Exchange Listing Plans, (Mena FN), Rated: B

Exhilway Limited will now foray into the peer to peer (P2P) lending private equity debt restructuring and the investment advisory business.

Exhilway Limited is in talks to partner or acquires global P2P lending company also a fresh private equity fund of US 50 million will be announced later this year to cater to the portfolio companies of Exhilway Global Opportunities Fund (EGOF) I subject to the fresh documentation and analysis. EGOF I was suspended last year due to the negligence in the due diligence process which was later pointed by the proposed investors who ultimately called for the suspension of the fund and withdrawal of their commitments until a fresh third party due diligence and surveillance audit report is submitted to the investment committee.

Exhilway Limited is eyeing a valuation of US 450 million (previously valued at US 200 million where the business of EPCM was not taken into consideration). A pre-IPO placement will begin in the second quarter of 2016 to further cement the valuation numbers.

NOW Corp CEO Hodgson to Present the Challenges & Future of Small Business Finance at US Chamber’s 10th Annual Capital Markets Summit on the Foundation of Economic Growth, (PR Web), Rated: AAA

NOWaccount is the first payment solution that enables small B2B/B2G businesses to get paid their actual revenue immediately and in a way that is not a loan or factoring, but rather feels like and costs the same or less than accepting a credit card for payment. However, unlike with credit card payments, NOWaccount does not impact the behavior of their customers, which continue to receive the invoice and pay according to their own schedules.

Real Estate Crowdfunding Platform Sharestates Tops 100 Deals and $100 Million in Loans Originated, (Press Release), Rated: A

Sharestates, an online marketplace for real estate investors, has crossed the $100 million mark in loans originated. In reaching this milestone, the company has funded more than 100 deals, while producing an average net annual yield of 10.4 percent. And overall, Sharestates has returned more than $21 million to its investors with zero loss of principal. “Our most significant statistic is that we have zero loss of principal, thanks to our underwriting experience and selectivity,” said Allen Shayanfekr, Sharestates’ co-founder, and chief executive officer. “

Funding Circle plans more hiring as small business lending remains strong, (Biz Journals), Rated: B

Funding Circle, a marketplace lender with U.S. operations based in San Francisco, plans to boost Bay Area staff by about 10 percent this year as demand for small-business loans shows no sign of slowing down. Funding Circle USA is hiring 20 people or so this year in all areas of the company, from risk and compliance to product engineering and sales. Funding Circle has 190 employees in San Francisco, which are part of a global workforce of 550.

Comment: 10% seems really low/slow. Lending Club, see a newsletter from the previous week, had 675 open positions, 3rd largest in SF after Uber and AirBnB.

How China is pioneering alternative finance and P2P lending – an analysis of the first ever Asia-Pacific industry report, (City A.M.), Rated: AAA

The Asia-Pacific alternative finance market grew 323 per cent last year, to $102.8bn. China was responsible for 99 per cent of that, with four-fold growth to $101.7bn in 2015.Excluding China, volumes grew 313 per cent to $1.12bn in 2015. In per-capita terms, New Zealand has the second-largest alt fi market, at $59.37. Yesterday, the first regional report, Harnessing Potential, was released by Judge Business School and the University of Sydney.  Capital in China is predominantly retail, with institutional funding remaining very low (10 per cent, rather than the 63 per cent elsewhere)

The first reason for this is the size of China’s economy, which has meant strong demand for more flexible credit from SMEs and individuals, and an increasing number of retail investors looking for returns above bank deposit rates.

The second is down to the extent of internet and smartphone penetration.

The third reason for such rapid growth is that alt fi in China has “been mostly unrestricted and unchecked” until recent guidelines from regulators, which also accounts for the other side of the market’s story: that of very poor due diligence, risk models, credit analysis and underwriting practices.

Large Inflow of Money Witnessed in LendingClub Corporation, (Street Edition), Rated: B

During the past week, the shares have seen a change of -8.29% in the shares.The block trade data suggests an inflow of $4.45 million in upticks and an outflow of $1.17 million in downticks.

Does LendingClub Corp Have Any Gas After Today’s Gap Down?, (Business Standard Tribune), Rated: B

Gaps down are helpful for identifying a resistance level and to could also be used as a tradeable event. If traders are short the stock and it experience gap down, then its usually advisable to hold the short for a bigger down move.

Latin American P2P lender Afluenta banks $8 million in funding round, (Finextra), Rated: A

Afluenta, Latin America peer-to-peer lending network announces today the completion of its Series B funding round from the International Finance Corporation (IFC), the private-sector institution of the World Bank Group, and Elevar Equity, a leading impact venture capital firm. IFC and Elevar Equity are investing $4 million each.

A pioneer in the region, Afluenta plans to use the proceeds of the Series B financing for accelerating its network expansion plan across Latin America. Launched in Argentina in 2012 and in Peru in 2015, Afluenta plans to launch new services in Mexico, Colombia and Brazil in the next 12 months to consolidate as the first pan-regional player of this new and disruptive alternative financing.

Innovate Finance and OnDeck set up Transatlantic fintech policy group, (Finextra), Rated: A

The UK’s Innovate Finance and US marketplace lender OnDeck have launched a Transatlantic Policy Working Group (TPWG) to share and exchange information on regulatory and policy issues impinging on the emerging fintech scene.

The Group has held its first talking shop at Google’s Washington DC headquarters, to discuss US and UK approach to policy and regulation in the fintech space, with representation from The Milken Institute, PayPal, Seedrs and Hogan Lovells.

Shift Technologies to test offering loans to N.Va. customers who buy used cars through its app, (The Washington Post), Rated: A

Shift Technologies, a Silicon Valley start-up that has created an app-based used car marketplace, is planning to help finance buyer deals as part of a new pilot program exclusive to the Virginia and D.C.

The company, which has attracted $73.8 million from investors, is initially backing up the loans with its own operating capital, a potentially risky move if a lot of buyers start defaulting.

Funding Options Recommended for Bank Referral Scheme, (Crowdfund Insider), Rated: A

Funding Options, an  SME finance shop, has been recommended for designation for the Bank Referral Scheme. Funding Options is a portfolio company of GLI Finance. The UK government also revealed its intention to designate Bizfitech as well as Funding Xchange as finance platforms under the SME Finance Platform regulations.

Comment: In the Bank Referral Scheme members will be given the opportunity to lend to thousands of customers that don’t qualify from the banks credit sanctions; these will be referred to each local CDFI for a further opportunity to get the finance they need. It is, in fact, a great lead source for Funding Options.

Western Independent Bankers Selects Bizfi as Premier Alternative Finance Provider, (Business Wire), Rated: A

Western Independent Bankers (WIB), a trade association which markets to over 600 community and regional banks, announced today that it will partner with Bizfi, a financial technology company that provides a wide range of financing options for small businesses, as the exclusive Premier Solution Provider for alternative finance.

This partnership provides the small business clients of WIB’s member banks and bank service providers access to Bizfi’s alternative financing platform.

Marketplace lender joins CCR regime, (Australian Broker), Rated: A

Marketplace lending company DirectMoney has embraced Comprehensive Credit Reporting (CCR) after signing an agreement with credit reporting bureau, Dun & Bradstreet.

The agreement provides DirectMoney with access to additional information on the credit history of potential borrowers, which will strengthen the assessment of loan applications and credit quality of the fintech’s growing loan portfolio.

As part of the agreement, DirectMoney will also share information regarding its borrower’s performance with the other lenders who are CCR participants.

Derek Barclay Named to the Board of Directors at San Diego Venture Group, (PR Newswire), Rated: B

LoanHero, Inc., online marketplace lender for consumers at the merchant point of sale, today announced that Co-Founder and President Derek Barclay has been named to the San Diego Venture Group Board of Directors. Founded in 1986, the San Diego Venture Group (SDVG) is a non-profit organization designed to bring San Diegans who are interested in new enterprise and the process of creating it together.

Ranger prepares to gear up for 10% yield, (City Wire), Rated: AAA

How much borrowing should direct lending and peer-to-peer funds use to gear up their portfolios? Ranger Direct Lending (RDL +
), a loan fund that raised £135 million at its flotation last May, has revealed it is considering how much leverage it needs to maintain the 10% yield target it set itself.  To ensure it can keep paying quarterly dividends at that level and afford costs like currency hedging the US-focused fund feels it needs to boost its total return to around 13% with some judicious borrowing.

To ensure it can keep paying quarterly dividends at that level and afford costs like currency hedging the US-focused fund feels it needs to boost its total return to around 13% with some judicious borrowing.

Kassul (pictured) sought to reassure investors by saying the trust would borrow no more than it needed to back the yield target. ‘We might only need 20% gearing just enough to hit that 10% yield,’ he told Citywire. The company has set aside 2.36% of assets as a loss reserve to deal with anticipated bad debts and loan defaults.

‘It costs me the same amount to underwrite a $50 million loan as a $5 million one but I get paid a lot more with a $50 million loan.’

With lower costs and more sophisticated credit scoring systems, the eleven lending platforms that Ranger worked with could afford to operate in these areas, he said.

Comment: There is no chance that alternative lenders can do $50mil loans ahead of the banks. Banks have all the strong cards in that market segment.

 

Author: George Popescu

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.

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *

Testimonials

default image

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default image

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default image

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default image

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default image

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest

Daily News Summary Digest Sent Daily To Your Inbox