- ABS market regains traction.
- Contrary to predictions fintech funding continues growth, mainly due to APAC and Europe.
- First European Securitization senior tranche guaranteed by European Investment Fund sells to German banks.
- Podcast: everything you need to know about securitization with Ram from PeerIQ.
- Boston-based Eastern Bank’s ($9.6bil) online lending platform great success.
- On Deck, Kabbage and Paypal form Online Small Business Lending Task Force.
- Mexico prepares regulation for debt and equity crowdfunding.
Online Loans Regain Traction, (Peer IQ), Rated: AAA
Avant priced it’s $300m offering on April 22n with Credit Suisse and JP Morgan running the books. Soon after, word began circulating that about a half-dozen other issuers were planning to come off the sidelines, some with transactions they delayed last year. Avant’s deal included a class of six-month senior bonds with an A- from Kroll that priced at a more palatable 325bp over eurodollar futures. This was 25 bp tighter than a similar batch of securities the Chicago firm sold on Feb 19th.
There also were signs of recovery on the secondary market. The example, a batch of junior Citi bonds that traded at 89 cents on the dollar on March 24th changed hands again on April 22nd at 94.1 cents, according to FINRA’s Trade Reporting and Compliance Engine.
The shops are hoping to exploit what might be a temporary window to carry out the issues. “A lot of deals are coming” one consultant said. “It’s back for now. Folks are trying to get deals done while they can.”
Examining Fintech Funding Activity in Early 2016, (Finance Magnates), Rated: AAA
Contrary to predictions, the fintech funding slowdown has officially not happened, with venture capital investment rebounding to a record high in the first months of 2016. Worldwide investment in financial technology companies in Q1 2016 (between January 1 and March 31) reached $5.3 billion, with a 67% increase year-over-year.
The growth has been largely sustained by investment in companies based in Europe and in the Asia-Pacific region, with the percentage of investment in these regions (62% of the total) almost doubling since the same period of 2015.
The APAC region, in particular, has seen unprecedented growth, with fintech investment quadrupling in 2015 to $4.3 billion.
Another key point emerging from the Accenture report is that fintech companies, defined as collaborative ventures targeting financial institutions as clients, are getting more attention over the players, defined as the “disruptors”, that enter the industry to compete against those institutions.
First European Marketplace Lending Securitisation Prices – German Bank buys EIF Guaranteed Senior Tranche, (Alt Fi Investor), Rated: AAA
In an exciting innovation, the European Investment Fund, part of the European Investment Bank Group, has guaranteed the senior tranche of the Funding Circle securitization, adding further support to the transaction.
KLS Diversified have executed the first European marketplace lending securitization, selling part of the senior tranche to the German development bank, KfW.
The A tranche pays LIBOR plus 220bps – about 2.7% currently. The tranche is rated Aa3 by Moodys and comes with a guarantee from an AAA rated supra-national entity. By comparison, 2yr UK government debt (also rated AAA) is currently yielding 0.52%. In a world of negative interest rates, the A tranche looks like a compelling investment for investors with a low-risk appetite.
The more junior tranches look appealing too. For example, the D tranche, which offers a discount margin of 775bps and 18.10% credit enhancement (ie there can be 18.10% bad debt in the securitization pool over the lifetime of the deal before holders of that tranche lose any principal), looks very attractive. Particularly when one considers that the current estimated annual return from investing in Funding Circle loans directly is lower than the what the tranche pays at 7.4% and that 7.4% estimate is based on an annual bad debt rate of 1.8% – significantly lower than the default cushion D tranche owners will enjoy.
Podcast 63: Ram Ahluwalia of PeerIQ, ( Lend Academy), Rated: AAA
- The motivation for platforms to use securitization as a funding source.
- The basics of how a securitization works.
- Why some investors can only participate in this asset class through a rated securitization.
- The mechanism that allows bonds to be created from a pool of loans.
- How different tranches work within a securitization.
- The different kinds of credit enhancements that can be used in a securitization.
- An explanation of PeerIQ’s securitization tracker and how many securitizations they have tracked.
- Ram’s perspective on the Moody’s downgrade of Prosper’s recent CHAI securitization.
- What Ram thinks of the increased delinquencies recently announced by Lending Club.
- Why we should expect higher delinquencies in general in the long term.
- Where the real story is in all the negative press we have seen.
- What was the unifying theme that Ram heard at the recent LendIt conference?
- Why Ram is still optimistic about the long-term future of the industry.
Goldman, Jefferies Said to Start Marketing LendingClub ABS Deals, (Bloomberg), Rated:AAA
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May, in the first of a series of such deals, people with knowledge of the matter said.
The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the “prime” scale.
Frenemies in the marketplace, (Banking Exchange), Rated: AAA
Dan O’Malley was hired two years ago by Boston-based Eastern Bank, the nation’s largest mutual bank with $9.6 billion in assets, to head its Eastern Labs division and create for the bank its own online lending platform.
Eastern Bank’s online lending platform—Express Business Loans—officially debuted in March and allows the bank’s existing business customers to receive approval on loans up to $100,000 in as little as five minutes.
The response to Eastern’s express loans has been phenomenal, according to O’Malley, who wondered two years ago, when they began building the platform, how much demand there would be from customers.
“During our initial pilot, we saw a tripling of the loan volume we had been doing in the test branches,” he says. “We thought this might have just been an anomaly, but in test after test, we saw an incredible response from our small business customers. Now that the product is available to all our customers, this continues to be the case. Customers do value a fast, easy loan process, and we figured out a way to deliver it while keeping the same strong credit policy.” [Read more about how fintech and compliance interact at Eastern in “Compliance management meets fintech”]
“The loans that our banks are making through these partnerships are loans that any bank would love to have—high-yielding loans to very creditworthy borrowers,” Graham says about Banc-Alliance. “The average FICO score is roughly 720 to 730; credit quality has been very strong.”
The number that banks ought to be tracking and focusing on is their loan application turnaround time, he says, because customers are telling them it’s too long.
Fintech Firms Splintered in D.C. as Regulatory Scrutiny Heats Up, (Bloomberg), Rated: AAA
Prominent small business lenders including On Deck Capital Inc., Kabbage Inc., and PayPal Holdings Inc. have formed a group named, Online Small Business Lending Task Force, to highlight their differences from other companies. Their alliance is an extension of the payments trade group, the Electronic Transactions Association.
U.S. Representative Patrick McHenry, a North Carolina Republican, has drafted a letter to the Government Accountability Office calling for more study of the benefits of fintech startups. McHenry, who is vice chairman of the House Financial Services Committee, is also working on legislation aimed at promoting innovation in the industry.
Because online lenders have diverse business models — including how they fund loans, measure risk and what kinds of customers they serve — numerous advocacy groups are being formed.
The Profit of LendingClub Corp (LC) Expected to Decline, ( B.O.D.Y.), Rated: A
Wall Street await LendingClub Corp (NYSE:LC) to release earnings on May, 3. Analysts forecast earnings per share of $0.01, up exactly $0.02 or 200.00% from 2014’s $-0.01 EPS. The expected LC’s profit could reach $3.72 million giving the stock 197.50 P/E in the case that $0.01 earnings per share is reported. After posting $0.02 EPS for the previous quarter, LendingClub Corp’s analysts now forecast -50.00% negative EPS growth. The stock decreased 2.35% or $0.19 on April 29, hitting $7.9. LendingClub Corp (NYSE:LC) has declined 40.91% since September 24, 2015, and is down trending. It has underperformed by 47.80% the S&P500.
For start-up Finda, information is hottest commodity, ( Korea Joongang Daily), Rated: A
Comment: article covering the Korean market.
Start-up Finda asks users a series of questions regarding financial status and goals and uses the answers to find the most suitable services from over 1,000 financial products. They pull together a wide range of savings accounts and loan products from major retail and savings banks. Finda also shows peer-to-peer (P2P) lending services that directly connect borrowers with lenders.
Finda has over 1,000 financial products sourced from 178 financial companies as of April 28.
As for P2P lending, we are cooperating with P2P lending service operators HonestFund and Funda, and we will soon sign agreements with 8PERCENT and Lendit.
Paying For College With The Equity In Your Home, (Forbes), Rated: AAA
A cash-out refinance replaces your existing mortgage with a new larger mortgage, and you (the borrower) take the difference in cash. Depending on the amount of cash you take out and with interest rates continuing to trade at historically low rates, the difference in your monthly payment may be far more manageable than student loan debt. It may also be tax deductible.
A homeowner with a college-bound high school senior and a house worth $350,000 with a $200,000 mortgage, can cash-out refinance for up to 80% of that $350,000 value and get close to $80,000 to help pay those tuition costs. Of course, the new $280,000 mortgage will come with a higher monthly mortgage payment but it will be significantly less than a student loan payment and it may be tax deductible.
So if your future undergraduate got an Award Letter that came up short and the EFC (Expected Family Contribution) on your FAFSA is a how-am-I-going-to-pay-for-that sized number, call your trusted mortgage rep and see if a cash-out refi or a HELOC is a make sense solution for you.
Peer to Peer Lending: $50 billion market in India, ( Meri News), Rated: A
China has the largest amount of P2P loans amounting to $150bn and about 2600 lenders. In countries like Australia, Argentina, Canada, New Zealand, United Kingdom, it is regulated like an intermediary requiring registration and following a proper conduct of business. In the UK, P2P loans are about 2.2 bn with around 347 lenders. In France, Germany and Italy, P2P lending platforms have to obtain banking license and make a complete disclosure.
Prof. Saurabh said that the minimum capital requirement of 2 crores recommended by RBI is unjustified keeping in mind that these are start-up trying to provide loans to people who do not otherwise have access to unsecured loans. The brick and mortar requirement, experienced directors, reporting requirement etc. as proposed by RBI look good on paper as, despite all prudential norms been present for Indian Banking sector, we are still facing a huge NPA burden of Rs. 1.14 lakh crore of debt. Total NPAs till now is over 8 lakh crore.
Mexico Prepares Regulations for Debt & Equity Crowdfunding, ( Crowdfund Insider), Rated: A
Comment: article covering the Mexican market.
“Crowdfunding has many benefits pertaining to the issue of financial inclusion, which is one of the interests of the CNBV, and what we want is a method for people to address financial issues and crowdfunding is the way in which could reach more Mexicans , “said Carlos Orta, vice president of regulatory policy CNBV in an interview with Expansion .” [translated from Spanish]
This past week the Comisión Nacional Bancaria y de Valores (CNBV) published their 7th National Financial Inclusion Report (Reporte Nacional de Inclusión Financiera). The document spent a good amount of time defining and addressing the various forms of investment crowdfunding. The document was published in advance of expectations that Mexico will soon enact an updated securities regulatory regime to embrace internet finance.
LendInvest reveals record month for development finance, ( Development Finance Today), Rated: A
The online property finance lender has managed to complete 14 deals in the four months since launching ranging from £400,000 to £10m. “Speed is incredibly important in today’s fast-paced property market for the smaller developer who is competing with large housebuilders and equity buyers. “For too long, developers have faced an uphill battle in getting their projects moving, having to fight for funding.
First Stock Market Firm to Turn to P2P, (Alt Fi), Rated: A
This is the first time, to our knowledge, that a stock market listed firm has partnered with a peer-to-peer platform in order to raise funds. This news story is clear evidence that peer-to-peer lending is becoming a mainstream source of funding, not only for small businesses, but also for companies like Tavistock that could more than likely have ventured down traditional financing routes.
Tavistock Investments PLC, a firm that provides compliance, administration, and accounting services to independent financial advisers (IFAs). According to the agreement, Assetz Capital will provide Tavistock Investments with a £2m facility. The loan – now available to investors – has a 3-year maturity with a potential extension of 2 years. The gross interest rate per annum is 8.5%.
The funds will be used by the investment firm to acquire a complimentary business as a part of its development plan. The name of the target company has not yet been disclosed.
FintechNorth, (P2p-Banking), Rated: A
FintechNorth event in Leeds, UK. A small conference with about 150-200 attendants.
Chris Sier put forward the provocative thought that we are at a cusp of a new banking crisis [in the UK] because of the rise of peer to peer lending. His argument is that the rising market share of p2p lending marketplaces will take away that much working capital from the banks that it will critically diminish the ability of the banks to create credit.
Growth Street, a company that offers overdrafts to SMEs. One aspect he mentioned was that all talks with banks about collaboration opportunities so far led nowhere. The banks are unable/unwilling to understand that they need to regain the trust of their SME customers (‘only 13% of SMEs trust their bank to act in their best interest’).
Markus Simson of Ziraff and Tiit Pekk of Codeborne gave some fascinating examples of the efforts to digitize a whole country: Estonia. I was aware of the great progress before, but I find it striking over and over when I hear tidbits about what it means for everyday life. E.g. 99% of state services are online. Tax declaration takes 3 minutes now, but that is considered too long, therefore the next step is to make it ‘zero click’. 98% of medical prescriptions are handled online, no paperwork. Only marriages and divorces are still conducted offline. Wonder about the latter – too messy?
Alternative roads to capital will add billions to the small business lending market, (Business Insider), Rated: A
Alternative lending platforms are in a position to capitalize on this underfunding and also take share from banks. These companies use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently. We estimate that alternative lending companies’ share of the small business lending market in the US will reach 20.7% by 2020.
Alternative lenders are now partnering with banks and this will propel growth going forward. New lenders are finding opportunities to offer white-label services to major banks. We expect banking partnerships, like the one between JPMorgan and OnDeck, to add 7.7 percentage points to the alternative lending industry’s market share by 2020.
A flurry of new lenders have entered the market, but it’s still early innings. A handful of small business lenders, from Funding Circle to Credibly, have entered the market and this is creating challenges as customer acquisition costs rise and alternative lending companies struggle to differentiate themselves.
The Silver Lining in an Uncertain Market Environment, (Linked In), Rated: A
Comment: Common Bond founder and CEO is talking about Common Bond’s state, rather positive as a matter of fact.
There is no sugarcoating the facts: 2016 has not been off to an easy start for the lending industry. From the volatility that has affected the global markets over the last quarter to higher investor expectations on purchasing lenders’ assets, the industry has reached an inflection point and is facing challenging market conditions. This is when great companies are made.
ThroughoutCmmon Bond’s 2.5-year history they have yet to see a single default.
He believes that responsible management teams must prioritize the disciplined growth of a quality portfolio versus “originations at all costs.” Disciplined growth is a characteristic that all (successful) earlier stage companies, across industries, must practice. The stakes are even higher in lending industries given the complexity involved in managing both lending and equity capital.
Fast Way Up the Ladder: Borrow from Your Family, (Ricochet), Rated: A
Asian immigrants — especially those from Vietnam, Korea, and India — routinely form lending clubs with family and close friends, where they lend money (under a watchful eye) to others to start businesses or engage in other forms of wealth accumulation. When the debt is paid off, the former debtor stays in the club, providing funds for loans.
Lending to, and borrowing, from family members, isn’t something that should be a privilege of the rich. It’s something that should be more prevalent among the poor and working class. But it isn’t.
CAN Capital Becomes Exclusive Finance Partner of Entrepreneur Media Inc., (PR Newswire), Rated: A
CAN Capital, Inc., the market share leader in alternative small business finance, andEntrepreneur Media, publisher of Entrepreneur magazine and Entrepreneur.com, today announced an exclusive partnership aimed at providing a streamlined solution for small business owners to access a range of funding products designed to help businesses grow. Later this year, the two companies will launch Entrepreneur Lending powered by CAN Capital, giving small business owners access to quick, hassle-free financing options for their businesses.
CAN Capital, Inc., established in 1998, is the pioneer and market share leader in alternative small business finance, having provided access to over $6 billion in capital for small businesses in a wide range of locations and different business types.
For nearly 40 years, Entrepreneur Media Inc. has been serving the entrepreneurial community providing comprehensive coverage of business and personal success through dynamic content and events. Entrepreneur magazine, Entrepreneur.com, and publishing imprint Entrepreneur Press provide solutions, information, inspiration and education read by millions of entrepreneurs and small business owners worldwide.
The University of Cambridge Launches 2nd Annual European Alternative Finance Industry Study, ( Crowdfund Insider), Rated: B
The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School is launching the Second Annual European Alternative Finance Industry Survey with the support of 17 major European industry associations and research partners following the success of its 2015 benchmarking report – Moving Mainstream.
Author: George Popescu