Featured News

May 25th 2016, Daily News Digest

United States

  • Banks offering leverage on marketplace lending weighting options.
  • Kabbage originates $2 billion in lines of credit.

United Kingdom

  • RateSetter offers “bullet loans”, without any payments until the due date.

China

  • Solar power needs alternative financing sources like p2p.

India

  • Interesting numbers in the Indian p2p market.

United States

Banks Move To Protect Themselves From Online Lending Troubles, ( Pymnts), Rated: AAA

As the dust continues to settle from the great Lending Club explosion, the big banks of Wall Street are reportedly inking up their Plan Bs when it comes to exposure to those loans should the market deteriorate more.

The list, according to Bloomberg, includes Credit Suisse Group AG and Deutsche Bank AG. Neither have officially acted to reduce exposure as of yet, but insiders report that they’re concerned about financing they provide to institutional investors that buy loans from companies like Lending Club and Prosper Marketplace Inc.

So far, banks have funded a few billion in online loans through such credit lines, and now, lenders are hoping to avoid the same kind of troubles that rocketed through the industry when mortgage lending had its historic course correction a little under a decade ago.

Which means planning for how and when to cut back on marketplace loans — though, as of yet, no plans have been made public. Lawyers and banks’ risk committees are now looking at how they might reduce, renegotiate or even cancel funding agreements with investors, Bloomberg’s sources said.

Rob Allard, who previously worked on complex debt instruments at Goldman Sachs Group Inc. and Deutsche Bank, notes that such scalebacks may likely be in the offing, as investors these days will cut off credit to customers even if loan performance hasn’t significantly deteriorated rather than risk the massive reputational damage that they faced during the financial crisis.

“This is noise banks want to avoid,” said Allard, who heads FireBreak Capital, a hedge fund that focuses on lending.

The especially undesirable noise comes from the short-term funding they provide to investors to help them buy online loans, as those loans are generally repackaged quickly into bonds and sold to other fund managers. The term for this is “warehouse lines of credit,” and they are widely credited with billions of dollars of losses for banks during the subprime crisis.

If these loans can not be packaged into bonds, banks may end up having to seize them.

“Borrowers typically don’t have the ability to repay in cash,” Richard Kelly, a managing director at New Oak Capital Markets, an advisory firm in New York, said. “That is a problem for banks.”

Worries aside, not all lenders are fleeing the field. Prime Meridian Capital Management is a loan investor that, with help from a bank, is increasing investments in loans made mainly by Prosper and Lending Club, noted Don Davis, a portfolio manager at the asset manager.

“As far as the quality of loans we hold in our portfolio, I see absolutely no problem with those loans, past, present or future,” Davis said.

Kabbage Reaches $2 Billion in Loans in 5 Years, (Finovate), Rated: AAA

Small business funding platform Kabbage was founded in 2009 with a mission to use big data to help underwrite small business loans. Today, the Georgia-based company announced it has originated $2 billion in loans during the past five years.

The 75,000 small business customers on Kabbage’s platform hail from all 50 U.S. states. The company links more than 1 million data sources to the company’s underwriting engine which pulls information such as business revenue, vendor payments, and tax and accounting data to assign the proper line of credit in real time. The credit line is dynamic; it automatically adjusts to furnish businesses with the right amount of capital they need to grow.

Lendio Joins GoDaddy Marketplace to Power Small Business Growth in U.S., (Email Press Release), Rated: A

Lendio (www.lendio.com), a marketplace for small business loans, today announced it has joined website domain registration site GoDaddy marketplace to support the funding needs of more than 14 million small business owners and entrepreneurs. This will not only increase Lendio’s reach and potential customer base, but will also expand GoDaddy’s small business services – providing existing users with unprecedented access to Lendio’s small business loan marketplace and Lendio customers with special GoDaddy offers.

LendingClub’s Legal Woes Mount With New Class Suit, ( Courthouse News), Rated: A

Peer-to-peer lender LendingClub is facing another securities class action by shareholders peeved that its stock price has dropped 75 percent since its 2014 initial public offering.

Alton Consulting filed a securities class action against LendingClub and numerous other defendants this past Friday on behalf of individuals who purchased securities during LendingClub’s December 2014 IPO through the open marking period up to May 2016, claiming multiple violations of the Securities Act.

Is LendingClub On Its Way To Bankruptcy?, (Seeking Alpha), Rated: A

Comment: old news and over dramatic title but interesting data.

On May 11, 2016, the compensation committee of the board of directors approved incentive compensation packages and salary adjustments for certain named executive officers. Specifically, Carrie Dolan, the Company’s Chief Financial Officer, was granted $3.5 million in restricted stock units (RSUs), which vests quarterly over a four year period, and a$500 thousand cash award, payable twelve months from the grant date. The compensation committee also approved an increase to Ms. Dolan’s base salary to $400 thousand per year, with a 75 percent bonus target. John MacIlwaine and Sandeep Bhandari, the Company’s Chief Technology Officer and Chief Risk Officer, respectively, each received $500 thousand in RSUs, which fully vest twelve months from the grant date, and a $500 thousand cash award, payable twelve months from the grant date.

Similarly, on May 14, 2016, the board of directors of the Company approved a special, incentive compensation package for Scott Sanborn, the Company’s acting CEO, consisting of a $5 million RSU grant, which vests quarterly over a four year period and a $500 thousand cash award, payable twelve months from the grant date. The board of directors also approved an increase to Mr. Sanborn’s base salary to $500 thousand per year, with a 100 percent bonus target. In addition, the board of directors approved an annual director fee of $250 thousand and $1 million of stock options, which vests monthly over twelve months and contains a single trigger change in control provision, for John C. (Hans) Morris in light of his newly expanded role as Executive Chairman.

LC offers no dividend to shareholders. Yet it offers plenty of new rewards to insiders. These monies represent a significant increase from the $40,000 per year salaries that they received last year, according to the 2015 Schedule 14 A form.

JPMorgan Chase CEO Jamie Dimon: Yes, tech will kill some jobs. But slowing tech down is the wrong answer, (Recode), Rated: A

So, what would Dimon do if he were in charge?:

  • Overhaul immigration. “We are pushing capital and brains out of America today,” he said.
  • Expand the earned income tax credit to help “lower-income and underprivileged people, especially in inner cities.”
  • Raise the minimum wage, but “not equally everywhere.”
  • Deploy relocation, training and income assistance programs to help people who have lost their jobs.

United Kingdom

JPMorgan Chase: CEO Dimon Advocates Expansion into Fintech, (Bidness Etc), Rated: A

 

Mr. Dimon asserted that technological advancement might pose risk to traditional financial services firms but the way out is to devise a strategy to cope with the looming threat. “There are downsides to a lot of things…there are downsides to flying-people die every now and then. Do you want to stop all air flights?”

According to a BBC report, over 600 bank branches were shut down in 2015 across the UK.

Once deemed a threat for big, well-positioned banks, Deloitte’s new study termed peer-to-peer (P2P) lending incapable of disrupting the financial system. Banks have the capability to offer better rates because of their big size and low-cost funding. The study projected that the rock-bottom interest rates will help P2P lending firms to grab 6% of the lending market by 2025. Otherwise, the rate hike will land the P2P lenders with only 1% of the loan market.

“I expect to win in payments. But there are weaknesses that you can exploit.” He defended banks’ inability to win on payments aspect, saying it’s “not because banks are dumb, but some of these systems were built a long time ago.”

That 7% reward may not be worth the considerable risk of peer-to-peer investing, (This is Money), Rated: AAA

Today, you can’t get more than a pathetic 2.5 per cent from a traditional Isa — and that involves tying up your money for five years with Tesco Bank.

By contrast, peer-to-peer companies such as Zopa, Funding Circle and RateSetter have been touting annual returns of 6 per cent or 7 per cent if you invest for five years.

The firms boast that very few of their loans go unpaid. RateSetter also has a £18 million provision fund from which it will pay out cash to savers if their investments go awry.

Even experienced peer-to-peer analysts told us they had no idea that RateSetter — the bravest firm in the amount of detail it makes public — was issuing ‘bullet loans’ where borrowers pay nothing back until the term ends.
Britain’s loan and credit card bill is growing at its fastest rate in a decade — up by 9.7 per cent over the past 12 months to £182 billion on top of mortgages or £7,296 for every household.

China

 

Internet financing methods to drive future DG solar build-out, (Recharge News), Rated: A

“Traditional financing methods are not appropriate for distributed-generation solar projects, but more innovative models have not yet reached maturity,” said Zhao Chenglong, managing director of Wuxi Financial Leasing, “Solar is developing rapidly, but investment can’t keep up.”

“Funding is still a big issue,” said GCL-Poly Energy Holding CFO Charles Yeung, noting that Chinese banks are generally reluctant to offer financing to developers until after projects have been built.

Hong believes that crowdfunding is not appropriate for the financing of solar projects, as it is difficult to define ownership with such methods. P2P platforms appear to be the most feasible choice in the years ahead, he said.

Last year, SPI Energy launched the Solarbao.com online investment platform, as part of its bid to become “the Uber of PV,” according to chairman Peng Xiaofeng.

The website — which allows individual and institutional investors to buy solar panels that are then leased for use in specific projects — has won accolades for its innovative approach to the funding of distributed-generation PV.

The platform has become quite successful, even though it offers average annual returns to investors of just 6-9%, which Guo said distinguishes Solarbao from similar websites that offer returns of 15-20%.

“There’s a level of trust, of course, because we’re a listed company,” Guo said.

India

 

Fintechs are heralding a new era for Indian banking and finance sector, (Business Insider), Rated: B

P2P lending is generating about $18.79 million in 2015.

Prime Minister, Narendra Modi, has been extremely vocal about his vision for widespread financial inclusion in the country. In fact, this vision is the cornerstone of his “Start Up India, Stand Up India” programme. The Government is going all out to solve the problem of financial inclusion with schemes like ‘Jan DhanYojana‘ and ‘Aadhar‘ enrolment. The RBI has also given in-principle approval to many large entities to set up Payment Banks across India. Additionally, alternative lending start-ups are boosting this endeavour across the nation with the help of technology. These Fintech companies are now also looking at entering strategic partnerships with various government bodies to enable financial services pan-India with the overarching goal of banking the unbanked.

India is considered to be one of the largest markets for consumer finance with close to 70 per cent of the market being underserved by institutional lenders.

Personal loans redefined: choose carefully, (Live Mint), Rated: A

According to Reserve Bank of India (RBI), personal loans grew 19.4% in value in March 2016 compared with 15% in the year ago period.

ZestMoney, an app and Web-based loan company gives loans to buy products on e-commerce websites. “These are loans for individuals who want to shop online but are short of money,” said Elizabeth Chapman, co-founder, ZestMoney. To use this service you have to create an account with ZestMoney as well as the e-commerce website. The interest rates range from 6% to 30% per annum and tenor is 2 months and 12 months. The average processing charge is 2% of the loan amount and the amount you can borrow ranges between Rs.10,000 and Rs.1.5 lakh.

Interest rates for most banks are in the range of 11.50% to 20% per annum.

Loan comparison websites and apps such as Paisabazaar.com, Bankbazaar.com and Deal4loans allow you to compare products across banks and NBFCs.

Loan comparison websites and apps such as Paisabazaar.com, Bankbazaar.com and Deal4loans allow you to compare products across banks and NBFCs. “Almost 80% applicants apply for loans from banks and NBFCs where they don’t have a relationship before,”

Companies such as Faircent.com, i-lend.in and i2ifunding offer personal loans. The loan amount ranges betweenRs.25,000 and Rs.5 lakh. The tenors are 6 months to 5 years, and the interest rates can vary between 12% and 36% per annum. The processing fee is Rs.500-2,000 or 0.5-1.5% of the loan amount.

It is not advisable to take personal loans for non-essential expenses such as holidays or shopping.

 

 

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.

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