News

May 5th 2016, Daily News Digest

  • SoFi gets Fannie Mae approval.
  • On Deck, Kabbage and CAN Capital will feature annual interests of their products in transparency push.
  • Great analysis article about the importance of capital in lending, strengths, and weaknesses.
  • Article showing the UK p2p market is underpriced and overperforming.
  • List of asset managers focused on marketplace lending.
  • Great talk by RateSetter CEO to UK Parliament.
  • Lending Tree reports strong results and strong guidance.
  • RBI regulation to cap interest at lower of cost of capital + 10% or 2.75 times the base rate of the top five commercial banks.

 

Marketplace Lender SoFi Gets Fannie Mae Approval, (National Mortgage News), Rated: AAA

SoFi Lending Corp., the mortgage subsidiary of Social Finance Inc., has been approved by Fannie Mae as a seller/servicer.

“Sixty-five percent of SoFi’s purchase customers are first-time homeowners who have what we call a ‘millennial mindset.’ We’ve designed our mortgage products for them — they value convenience and speed, and they want a range of purchase-focused products that help them to be competitive in the attractive real estate markets in which they live.”

Online Small-Business Lenders Agree to Disclose Annual Rate on Loans, (Wall Street Journal), Rated: AAA

On Deck Capital Inc., Kabbage Inc. and CAN Capital Inc. are creating an industry group, called the Innovative Lending Platform Association, that will develop a standardized disclosure for small-business loans, the chief executives of each company said.

The effort would allow small businesses to compare the costs of different types of financing on an apples-to-apples basis, including their annual percentage rates.

The new loan terms at the companies might be rolled out as soon as September.

In the past, some online lenders have resisted advertising annual percentage rates, arguing that the figure made their loans, many of which came with terms of less than a year, appear more expensive than they actually were.

Federal and state authorities have been looking to examine disclosure of loan terms, which has become “the most salient issue around our space,” said OnDeck Chief Executive Noah Breslow.

Mr. Breslow said the new lending trade group is expected to take on new members and not be partial to one particular type of loan.

OK, Marketplace Lenders, I’ll Say It: Told You So, (American Banker), Rated: AAA

 

Alternative lenders ignored the lessons that generations of nonbank finance companies learned (usually too late) in the past: liquidity is everything, institutional money can’t be relied on, expenses are harder to cut than add, high rates of loan growth aren’t sustainable and a business model based on volatile gain on sale margins is inherently unstable. This is where I get to say I told you so.

Institutional investors and the securitization market aren’t interested in OnDeck’s loans, at least at prices that work for OnDeck. And the loans it puts on its expensively-funded balance sheet take a while to generate income. OnDeck’s much-vaunted “hybrid” funding model couldn’t ride out the turbulence.

Prosper, the granddaddy of the true marketplace lenders, laid off more than a quarter of its staff due to reduced growth expectations. The reason? Institutional investors again. This when the horizon is looking stormy for other players. SoFi is giving strange signals about its funding, announcing steps such as in-house hedge funds and giving precious equity to institutional funders who will commit to long-term funding. Avant’s first quarter loan volume dropped 27%.

Consumer and small business acceptance of online lending has continued to grow, although satisfaction levels decline as interest rates increase. The industry is working hard to create borrower- and regulator-friendly standards and curb the “wild west” outliers. Brand value is being created. The front-end and back-end technology (in the case of the true marketplace lenders) works well. So far, individual marketplace investors have stayed loyal (stay tuned on that front when losses start to show up). Bank partnerships, which leverage banks’ stable funding sources, are on the upswing. That means there’s still time to right the ship.

Business models — particularly related to funding — are unsustainable, even in good credit times.

But keep in mind that you have more leverage in this situation than you may think. The banks need you just as much as you need them. It’s no secret that they are terrible at one of the things you are best at — developing and deploying nimble, customer-friendly, easy-to-use technology solutions. And they see you as the gateway to the millennial customers they are so worried about keeping. It smells like a win-win situation to me.

Marketplace lending funds represent good value – would a benchmark help to illustrate this?,  (Alt Fi), Rated: AAA

Stock markets have undergone a significant change of heart with respect to the value they ascribe to listed marketplace lending funds.

The manager behind P2PGI – MW Eaglewood – can reflect on some remarkable achievements.  They have successfully deployed the cash proceeds of the initial IPO.  Indeed they deployed so effectively that they have raised further capital along the way, taking the fund to £870 million of capital today, from £200 million at the outset.

The fund has also acquired equity stakes in some of the most exciting origination platforms that are increasingly recognised as the dominant players in the marketplace lending universe.

However, in the face of this progress, the stock market is not impressed.  The premium has turned to a discount.  This discount approached 17% in Q1 and persists today at around 10%.  The market seems to be expressing a concern about the likelihood of the assets in the P2PGI book delivering the consistent 6-8% returns that have been promised.

There is no sign of any deterioration in the performance of UK marketplace lending assets.  Nor is there any significant sign of the market requiring a higher return on new loans in anticipation of any deterioration in the environment going forwards.  This would suggest that the c.30% of the P2PGI book that is exposed to these assets should be on track to deliver the 6-8% that the fund has guided investors towards.

The discount that the shares are presently trading at may prove to be, as much of anything, a function of market uncertainty.

A disconnect seems to have emerged between the equity market’s valuation of these funds and the marketplace lending primary market. In essence, because of a 50bp increase in implied expected losses across 65% of their book, you can buy P2PGI’s entire book for 90 cents on the dollar, versus a new loan in the primary market for a dollar with 50bips of extra rate. An extra 50bips for 3 years does not add up to 10%!

Marketplace lenders: Old hands in new market, (Euromoney), Rated: AAA

As the number of marketplace lenders proliferates so does the number of asset managers dedicated to investing in the sector, either directly or in securitized form.

New York-based Blue Elephant Capital Management was one of the earliest investors to specialize in marketplace lending.

The first securitization of marketplace loans was undertaken by Eaglewood Capital Management in 2014.

Chicago-based investment manager RiverNorth Capital Management plans to launch the first closed-end fund focused on marketplace lenders.

KLS Diversified Asset Management, which works closely with Funding Circle and is taking the first-loss piece of its debut securitization.

Godolphin Capital Management is another marketplace lending investor.

If breakneck growth in marketplace lending does trigger a big rise in losses at these platforms, at least many involved will be in familiar territory.

P2P lender presents new banking ideas to parliament, (Bridging and Commercial), Rated: AAA

RateSetter CEO Rhydian Lewis recently delivered a keynote speech in Parliament, with an aim to promote a case for bank deposits to be separated from lending.

Despite regulation, capital requirements and deposit protection schemes, Rhydian felt that it resulted in banks being over-capitalised for the good times but still under-capitalised when the worst happens.

Lending jitters as OnDeck losses spook market, (Business Review), Rated: A

Historically, the company has sold a lot of its loans to investors, yet in the first quarter the volume of loans onsold plunged to 26 per cent, from 40 per cent three months earlier.Management warned the figure could dip as low as 15 per cent in the three months to June.

The market for OnDeck loans has two categories of investors. The level of interest from the first category — those that hold the loans to maturity — remains healthy. However, a second group of institutions that buy the loans to securitise them, using leverage to maximise returns, virtually disappeared in the March quarter. In the previous three months, they soaked up more than half the loans sold by OnDeck.

Aris Allegos, founder of online lender Moula, distinguishes his company from OnDeck, saying he runs a loan book with a net interest margin, much like a bank, and doesn’t rely on the on-sale of loans.

“Moula will live through it because we have a committed balance sheet from Liberty, but nobody wants some kind of Armageddon.”

Lending Tree Reported Strong Q1 Results. Guides Higher for Q2, (Crowdfund Insider), Rated: AAA

In contrast to what we are hearing from some other online lending platforms, Lending Tree (NASDAQ:TREE) reported strong Q1 results this morning. Earnings per share (EPS) came in at $0.76 topping the Capital IQ consensus number of $0.74/share. The top line number was $94.7 versus the consensus estimate for revenue of $86.6million. Lending Tree said mortgage products grew by 49% over same quarter year prior. Non-Mortage products jumped by 186% to $39.7 million versus Q1 2015. While the numbers were a clear “beat” the stock still suffered in a down market day.

RBI starts meeting major players in P2P lending, (The Financial Express), Rated: AAA

Comment: article covering the Indian market.

Reserve Bank of India (RBI) has started meeting some leading players in the sector. The founder of a leading P2P lending platform, who met officials of RBI’s Department of Non-Banking Regulation on Wednesday, told FE on the condition of anonymity.

He also said that money laundering and interest rate are two of the main areas that the RBI is focusing on while framing the final guidelines for the sector.

As per current RBI regulations, the maximum rate of interest that an NBFC MFI can charge is the lower of 10% more than its cost of funds and 2.75 times of the base rate of the top five commercial banks.

Post May 31, which is the deadline set by RBI for suggestions and comments on the regulations, it will work on the final guidelines and seems keen on releasing them by the end of the year, he added.

Rumor: China’s Dianrong mulls 2017 IPO. ( Finance Asia), Rated:A

Note: article seems to have been retracted from their website.

Treasury Dept. marketplace lending findings expected to be released next week, (JD Supra), Rated: A

The CFPB recently joined other federal regulators who have indicated a growing interest in marketplace lending with its announcement that it is accepting consumer complaints about loans obtained through marketplace lenders.  The U.S. Department of the Treasury had previously demonstrated its interest in marketplace lending by issuing a request for information (RFI) in July 2015.

When it issued the RFI, the Treasury indicated that the information it sought was intended to allow it to study the business models of online marketplace lenders and the products offered to small businesses and consumers; the potential for online marketplace lending to expand credit access for historically underserved markets; and how the financial regulatory framework should evolve to support the industry’s “safe growth.”

Chinese asset management industry cleaning house, (International Adviser), Rated: B

More than 2,000 private fundraising and management firms will be forced out of the Chinese market, according to the China Securities Regulatory Commission (CSRC) and the Asset Management Industry Association of China (Amac). – See more at: http://www.international-adviser.com/news/1028968/chinese-asset-management-industry-cleaning-house#sthash.1fE04Iln.dpuf

RateSetter Adds Chief Risk Officer to Management Team, ( Crowdfund Insider), Rated: B

RateSetter has appointed Cyrille Sallé de Chou as its new Chief Risk Officer. Chou will be migrating over from Lloyds Banking Group where has been the Credit Risk Director of Mortgages. In that role, he was said to have overseen one of the largest loan books in the UK. Prior to joining Lloyds, Chou spent time at Capital One where he was Chief Credit Officer for Europe.

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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