News

April 25th 2016, Daily News Digest

  • Rumors of Goldman possibly targeting Prosper for a buyout.
  • Goldman’s revenue tumbles 40%.
  • Goldman lines up depositor capital at 1.05% for lending.
  • Avant loan volume drops in Q1 2016.
  • Central Bank of India actively working on regulation.

Goldman Eyeing Marketplace Shops, (AB Alert / PeerIQ Newsletter), Rated: AAA

Goldman looks to create an alliance with existing originator—Prosper identified as the possible target. It is unclear if the discussion is regarding an asset-purchase arrangement or a buyout. Goldman along Morgan Stanley was mentioned as a candidate to bundle Prosper’s loans into pass-through certificates .

Goldman meanwhile has built a sizeable staff for its digital consumer lending unit. Only 1/2 dozen of the US 350 marketplace lenders are of scale to fit Goldman’s needs. Along Prosper, they include Avant, Lending Club, and Marlette Funding.

Goldman Sachs – GSBank May Use Deposits to Support Mosaic P2P Lending Platform, ( Crowdfund Insider), Rated: AAA

Goldman announced that Goldman Sachs Bank (GS Bank) has acquired  the online deposits held by GE Capital Bank. The total was estimated at $16 billion.

It is interesting to note that GS Bank offers a 1.05% yield on deposits, differentiating its service from many of its peers that just seem to charge high fees.

This weekend, speaking to the FT, Stephen Scherr, Chief Strategy Office of Goldman Sachs, clarified the banks strategy – stating the growing deposit base could support their peer to peer lending strategy.  The article stated that Goldman has been “aggressively gathering deposits” beyond the GE deal.

Avant Loan Volumes Dropped Sharply in First Quarter, (Wall Street Journal), Rated: AAA

Online lender Avant Inc. made $514 million worth of new loans in the U.S. in the first quarter of 2016, a drop of 27% from the fourth quarter of 2015, according to a report by Kroll Bond Rating Agency.

An Avant spokeswoman said that the slowdown was due to elevated demand around the fourth-quarter holiday season and consumers not needing as much credit in the first quarter because many received tax refunds.

Avant is in the process of selling about $300 million in securities backed by its online loans, according to Kroll. The rating firm expects the loss rate on the Avant loans underlying the bonds to be between 18.75% and 20.75% as a base case, slightly better than the expected loss rate on a February bond deal from Avant. That’s higher than the loss rates at other online lenders, but that’s partially because Avant tends to focus on borrowers with relatively weaker credit histories.

Goldman Shows the Big Problem for Banks: Revenue, (Wall Street Journal), Rated:AAA

Goldman Sachs Group Inc. reported sharply weaker first quarter results, raising investor fears that there are fundamental problems in the Wall Street money-making machine. Profits for the biggest U.S. banks were down. But five of the six also posted shrinking revenue—led by a 40% drop at Goldman.

The big six U.S. banks reported a combined $97 billion in revenue, down about $10 billion from a year earlier.

At J.P. Morgan Chase & Co. and Bank of America Corp.,  consumer lending mitigated the declines in their trading and investment-banking units.

Goldman’s finance chief, Mr. Schwartz, stressed Tuesday that the bank is zeroing in on cost-cutting efforts to try to keep profits as high as possible through the revenue slump. It cut total expenses by 29% to $4.76 billion in the quarter, mostly thanks to a 40% reduction in compensation and benefits.

Technology is finally eliminating geography as a barrier to real estate investing, (TechCrunch), Rated: A

Technology has enabled radical changes in how and where people invest in real estate. The old adage that real estate investing is a local business no longer holds true.

With as little as $5,000 down, investors across the world can buy a stake in a single-family home, or with a larger investment, they can opt to purchase shares of a 300,000-square foot office tower.Realty Mogul, RealtyShares, Fundrise and more than 200 other firms valued at a combined $2.6 billion worldwide support this type of crowdsourced investing.

There is no real way of knowing whether the interests of the majority owner are even aligned with the interests of the portion that is crowdfunded.

Firms such as HomeUnion, and OwnAmerica offer investors the ability to buy an entire single-family home or create a portfolio of homes, fully customized to meet their personal investment needs.

According to Venture Scanner’s portfolio management category, the median funding value of real estate startups globally is $3 million. One of the leading anti-crowdfunding companies, HomeUnion, has raised nearly $23 million in funding from VCs and has closed on the sale of more than $50 million in single-family rental assets since its inception.

In the U.S., single-family rentals currently comprise 40 percent of the country’s entire rental stock, up from 34 percent in 2005. Individuals own the majority of all single-family rentals — 83 percent — with REITs and other institutions holding the remaining small portion.

What’s next for personal financial services?, (Tech Crunch), Rated: A

2015 was the year of the great “Bank Unbundling,” with new companies dissecting the consumer banking experience to offer specialized services.

Financial innovation has a huge opportunity to reduce wasted time and money through more efficient processes.

New banks — like Chime, which is reported to have more than 75,000 open accounts and counting — are offering consumers an alternative to traditional banks, without the fees.

Overall statistics indicate that credit awareness and viability are improving in the U.S. The average credit score in the United States is 695 (April 2015), a record high, and higher than the average pre-recession score of 688 in 2005.

Popular apps like Digit have created consumer value by automating and optimizing personal savings, and the next wave of innovation will focus on creating a full suite of services utilizing AI to drive financial health and literacy.

In the United States, there is a huge and diverse market of underserved groups. It is estimated that 28 percent of the U.S. population is either un-banked or under-banked. The payday lending market is estimated to be as large as $46 billion, with ultimate fees often exceeding the amount borrowed.

Interest rates could go negative, says Bank of England rate setter, (The Telegraph), Rated: A

Speaking to the Evening Standard, Mr. Vlieghe said that sub-zero rates were a theoretical possibility that the Bank would “have to think about very carefully”. He explained that at a certain level, negative rates could deter depositors from keeping their savings in banks.

Bexhill UK launches peer to peer lending platform, ( Insurance Age), Rated: B

Bexhill UK has launched a peer to peer lending platform, named Orchard Lending Club, specializing in the insurance premium finance market and the insurance broker working capital financing market.

Ravi Takhar, CEO of Bexhill UK, commented: “We are excited to be the first premium finance company to offer a peer to peer lending opportunity in the insurance broking market”.

He added: “In the last 16 years, our group has lent over £600m to insurance brokers, professional organisations, and their clients and has had zero losses.

“We are expecting this to be an attractive investment for potential lenders.”

RBI to consult Sebi on peer-to-peer lending before finalising rules, (DNA India), Rated: A

Comment: article covering the Indian market.

The Reserve Bank will soon come out with a concept paper on peer-to-peer (P2P) lending, and will hold consultations with capital markets regulator Sebi before finalising the rules, Deputy Governor R Gandhi said today.

RBI to harmonise regulations between banks and NBFCs , (India Times), Rated: A

Comment: article covering the Indian market.

“Many of you have raised questions about the current policy of harmonization of regulations for NBFCs with the commercial banking sector,” R Gandhi said. “Let me clarify that our stance is to harmonise not equalize the regulation.”

Gandhi also added that common activities of banks and NBFCs will be subject to similar regulations to remove regulatory arbitrage. He also added that the banking regulator will continue to approve new kind of NBFCs if the situation warrants.

Why Blockchain Could Enable a True P2P Insurance Model, (CoinDesk), Rated: A

Blockchain, especially smart contracts, could be the enabler for a true P2P or crowdfunded insurance model. In the new business model, the focus of the insurers would shift away from asset management and instead would focus on matching supply and demand and to risk calculation research.

The insurer then would use its “risk intelligence” and risk models, based on their historical data, to perform a premium calculation to post the expected return, after subtracting their margin off course.

So far, this model looks much like the one Lloyd’s already has in the insurance market or the ones companies like Funding Circle have set up in the P2P lending market.

With regards to regulatory licenses, similar models in the P2P lending business don’t need a full license or even a license at all, just an exception from the regulators.

Insurers also need to create critical mass on the investor side in order to spread risk in case of larger payments to customers, and flexibility would be needed on the demand side in the case of very specific insurances.

Credit Risk Expert Arash Sotoodehnia Joins RealtyShares Executive Team, (Press Release), Rated: B

As Chief Credit Officer, Sotoodehnia is responsible for managing RealtyShares’ risk analytic framework, policies, and guidelines. He brings nearly two decades of experience in the financial services industry to the role.

During his previous tenure with Citi Mortgage as Head of Risk Policy and Controls, he spearheaded the development and implementation of the company’s Mortgage Risk Appetite Framework. He was responsible for developing and publishing Citi’s mortgage credit policies while overseeing a team of 75 risk professionals. He also served as a member of Citi Mortgage’s Collateral Risk Committee, the Credit and Market Risk Committee, and the Risk Committee.

Prior to that, Sotoodehnia held several senior positions with Ally Financial, including Global Consumer Credit Officer and Chief Risk Officer of Ally Insurance. He also served as the Chief Risk Officer of Ally’s ResMor Trust subsidiary from 2008 to 2010.

Is alternative finance still alternative?, (Growth Business), Rated: B

£715 million in new loans were approved in the first quarter of 2016 alone, according to the P2PFA (Peer-to-Peer Finance Association).

“The pace of growth has been consistent, with volumes almost doubling year on year, and this is just the start of it. We expect this growth to snowball, as more platforms receive FCA approval for the innovative finance ISA,” he explained.

 

Political, business leaders size up stability risks from fintech growth, (Reuters), Rated: A

On Tuesday, a collection of executives from large banks, start-ups and regulatory agencies such as the Bank of England and Western Union, put forward four recommendations for a global approach to fintech under the banner of the World Economic Forum.

 

 

Author: George Popescu

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.

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