Featured News

May 30st 2016, Daily News Digest

US

  • Citibank’s ongoing interest in supporting Lending Club.
  • Amazon eyeing fintech acquisitions on lower valuations.

UK

  • The next steps for GLI Finance.
  • P2PGI declares 1.5 pence dividends vs 2 pence expected, due to leverage costs and fees.

India

  • RBI’s lessons from microfinance will be applied to p2p lending.

China

  • Bank’s hidden loan boom. Is China the next Greece ?
  • A new Chinese Angel fintech fund is starting.
  • Beijing putting a “1+3+N” plan to regulate P2P lending.
United States

Will Citi Buy Lending Club Loans? What Does this Mean for the Marketplace Lending Industry?, (Crowdfund Insider), Rated: AAA

Shares in Lending Club (NYSE:LC) jumped last week as chatter popped up in a report inWSJ.com that Citigroup may be purchasing, or perhaps providing financing, for their loans.

This is the second round of positive news as it was recently revealed that Chinese billionaire Tianqiao Chen picked up a significant stake in the largest US marketplace lending platform.

So why would Citigroup be “productively engaged with Lending Club on a number of fronts”?  Because it is a good investment.

This most recent capital constriction is a temporary situation.  The reveal by Citi they are working with Lending Club is probably one of many similar announcements going forward.  Beyond the problematic issues with the former CEO , the challenge for online lenders has been the lack of diversification in capital channels. This can be managed.  The more pressing issue is one of regulatory risk. While some public officials mouth the words of understanding and consumer benefit this may not be the case. All too frequently these officials take the approach of “why waste a crisis” when it provides an opportunity to expand their own bureaucratic domain and power.  Now that is serious risk.

Grip of Liquidity Crisis Tightens on Lending Club, Prosper, (Bank Innovation), Rated: A

Matt Harris of Bain Capital Ventures commented to Bank Innovation last Friday that alternative lenders might need to give up equity or make other concessions in order to secure funding. He was proven correct just days later when Prosper reached out to banks to “explore strategic alternatives, including selling equity in the company,” according to Reuters.

US peer-to-peer lending model has parallels with subprime crisis, (Financial Times), Rated: A

Comment: These are not new arguments and quite a few articles discuss these arguments offering the other side of the coin as well.

First, P2P platforms, like the originators of subprime mortgages — and the banks that repackaged them — have no “skin in the game”. They originate loans to distribute them and have little reason to care whether the borrowers can repay.

Second, there is limited data on loan quality — P2P credit deals are audited, but only summarily.

And third, for the banks that are lending to hedge funds, who in turn are buying the P2P loans, there is scant information about loan collateral. Again, not unlike the poor quality, overvalued real estate underpinning many subprime loans in 2006.

There are potential fixes. Most urgent is the need for a mechanism to boost trust in credit quality. The US Global Debt Registry has launched a pilot scheme with some big investors to vet loan portfolios and collateral.

On the plus side, the P2P sector is still pretty small, and with sensible de-risking, it will recover — at least until the interest rate cycle really tests the robustness of the model.

Lending Club (LC) Rating Reiterated By Morgan Stanley, (LMKAT), Rated: A

Lending Club (NYSE:LC)‘s stock had its “buy” rating reiterated by stock analysts at Morgan Stanley in a research note issued on Sunday.

Amazon mulls fintech acquisitions as valuations fall, (CNBC), Rated: AAA

Amazon Payments was relaunched in 2013 and the company has a product called ‘Pay with Amazon’ which allows the company’s customers to pay for anything using their account on other websites.

Now the business has racked up 23 million active users, Amazon is ready to start extending its platform through acquisitions.

Gauthier did not reveal specific targets but said Amazon is on the lookout for companies with “good teams, people who have a focus on customers, and means through which we will be able to extend the number of user cases and number of places where we can roll out Pay with Amazon”.

Amazon Payments is a direct competitor of PayPal and credit card companies like Visa which has its own online payment solution. The division has been growing quickly with the number of active users globally increasing 150 percent last year to hit 23 million. The number of merchants on board grew 200 percent year-on-year, though Amazon did not give a specific figure. And the average transaction value of people using Pay with Amazon is $84 globally.

The Evolution of Marketplace Lending, (JD Supra), Rated: A

Comment: just a summary article of the latest trends in the US in the last few months.

The Consumer Financial Protection Bureau recently ramped up its focus on marketplace lending, increasing the likelihood of future regulatory and enforcement actions.

One of the largest marketplace lenders recently restructured its relationship with its issuing bank out of concern that the Second Circuit’s decision in the Madden v. Midland Funding case could be construed to prohibit marketplace lenders from preempting state usury laws.

The funding model for marketplace lending continues to evolve, as evidenced by one lender’s establishment of an affiliated hedge fund to purchase marketplace loans it originates.

Earlier this month, the Department of Treasury (the “Treasury”) issued its white paper on online marketplace lending, after issuing a request for input from the public last summer. See Dechert OnPoint, US Treasury Eyes Online Marketplace Lending.

LendingClub Founder Turned to Mack for Emergency Loan Help, (Bloomberg), Rated: A

When the founder of LendingClub Corp. needed quick financing earlier this year, he turned to his fellow board member, former Morgan Stanley Chief Executive Officer John Mack, for an old-fashioned version of a peer-to-peer loan.

Absent the outside help, Laplanche would’ve been forced to sell part of his stake in the company, potentially exacerbating LendingClub’s slide. The firm, which pioneered the peer-to-peer model of matching borrowers with investors online, was facing questions about whether it would be able to sustain its rapid growth.

“Renaud wouldn’t want to sell because of the message it would send, as well as his feeling it was worth more,” said John Donovan, a member of LendingClub’s founding team and the company’s former chief operating officer. “If anything, he doubled down,” said Donovan, who now works as chief strategy officer for CircleBack Lending in Boca Raton, Florida.

“In the opinion of the company these lending arrangements were executed on normal market terms and, because the company had no financial involvement in them, did not require approval under the company’s policy on related-party transactions,” LendingClub said in the filing.

From Dec. 9 to Jan. 15, the stake pledged to the trust had lost almost half its value, falling to about $35 million. After Laplanche obtained the new financing, he offered to loan enough money to Chief Financial Officer Carrie Dolan so that she could refinance a personal loan backed by her shares, according to the May filing. She declined to comment through a company spokesman.

As trustee of the Brant Point Trust, Laplanche received a $6.51 million mortgage on the Ross property from Morgan Stanley Private Bank on Feb. 19, according to a copy of the deed of trust filed with California’s Marin County.

LendingClub disclosed in its annual proxy statement in April that the company has adopted a “hedging and pledging” policy that, among other things, prohibits officers and directors from pledging LendingClub securities as collateral for a loan or holding them in a margin account “without the prior approval of our general counsel and disclosure to the audit committee.”

 

United Kingdom

Fund Watch: What next for pioneer GLI?, (AltFi Investor), Rated: AAA

It’s easy to forget that the first real alternative finance fund listed on the stock market in the UK wasn’t the big daddy of the sector, P2PGI, but the much smaller GLI. This started out as a credit fund, listed on the LSE but almost exclusively investing in US businesses via structures called CLOs.

Over the last three years under former CEO Geoff Miller this fund morphed into a hybrid outfit, part fund with a big, diversified loan book, part venture capitalist investing in new lending platforms – linked by a real international focus on backing small to medium sized enterprises. This vision may have excited many in the alternative finance space but I’m fairly sure that most private investors (who until recently dominated the share register) probably only really cared about the dividend, which exceeded 10% per annum at one stage.

Crucially that dividend payout needed to be kept up, requiring a steady stream of interest paying loans, cash which arguably might have perhaps been better spent building up the equity value of those venture capital investments which at one stage numbered 19 different businesses worldwide.

The dividend which is now targeted to hit 2.5p per annum. The group’s speciality finance strategy involves a sharp focus on a small number of already profitable businesses which hopefully should, in turn, be able to produce enough cash to pay that dividend, which on the current share price amounts to a yield of close to 9%.

The last observation is that there has been an important shift. GLIF used to be in reality more of a VC that paid a dividend, whereas now the much simpler group looks and feels less like a VC and more like a specialty finance business.

To help fund the transformation the group also announced the issue of 5 year £10m 7% unsecured bonds issued for the Sancus Gibraltar acquisition, listed on the Cayman Islands Stock Exchange, tradeable on UK Bond Network (still very much part of the group portfolio). In particular, there’ll be an additional £4 million of bonds issued via UK Bond Network to Eligible Investors – proceeds will be applied towards repayment of the existing syndicated loan facility with Sancus (Jersey) Limited of £14.86m.

I’m a tad underwhelmed by the terms of the bond on offer – the interest rate of 7% for five years strike me as a bit parsimonious. Much bigger stockmarket listed outfits such as litigation funder Burford have been issuing equally long duration bonds with yields of between 6 and 6.5%. GLI is substantially smaller than these retail bond issuers and arguably we think a more appropriate yield would have been 8% or more. Five years is a long time in investing terms, and I’d argue that bond investor’s deserved a bigger yield to compensate them for the risks. Still, there’s no getting around the fact that this is an innovative idea and we wouldn’t be surprised to see the issue snapped up anyway.

10 Questions with Steve Larkin of LendInvest, (Development Finance Today), Rated: B

Why did you decide to join LendInvest? I have been really impressed by the management team and how they are trying to change the landscape of property finance. Their outlook on the business is invigorating in this climate.

What one thing would you change about the development finance industry? I’d like to see planning laws be more favourable towards the small- to mid-sized developer.

What exciting projects does LendInvest have this year? We have big plans for growing the team as we become a name that’s immediately associated with development finance. We are looking to recruit new team members now to assist with the flow of deals that we are now seeing, and also enhance our capacity to originate more transactions.

What is the biggest challenge for the development finance market this year? Site availability is one.

Peer-to-peer loan fund cuts dividend, (Financial Times), Rated: AAA

VPC Speciality Lending, a London-listed investment trust, has announced its return will be lower than targeted, resulting in a dividend cut for the first quarter. The cut to 1.5p from 2p means the dividend sits below the fund’s annualised target, and will be partly funded by 0.19p of reserves.

The trust said the lower returns were caused by fees and costs attached to both leveraging the fund and securitising assets, as well as a “drag” of uninvested cash.

Trusts including P2PGI, run by hedge fund Eaglewood Capital, Ranger Direct Lending, GLI Alternative Finance, and Funding Circle are all trading on discounts to net asset value ranging from -13 per cent to -3 per cent.

Cormac Leech, peer-to-peer analyst at investment bank Liberum, said the low share price was due to investors’ concerns over credit quality combined with some “relatively lacklustre performance” in early 2016.

Sam Griffiths, managing director at peer-to-peer lending data provider AltFi Data, said performance of the underlying loans “remains robust”.

India

Vaibhav Pandey, CEO of P2P Lender i2iFunding Shares Insight into Nascent India Market, (Crowdfund Insider), Rated: A

What type of traction does i2i already have in the peer to peer lending sector? How are you attracting borrowers? Investors? We launched our portal in Oct 2015, and we have been growing rapidly since inception. Today we do more loans in a month than what we used to do in a quarter about a month back. We now have more than 1500 authenticated registered users on our platform and have disbursed more INR 5 million as loans with zero defaults so far.

How much competition exists in India in the P2P sector?  In India, the p2p sector is at a nascent stage. There are around ten p2p platforms. However, only 5-6 players are serious and actively competing for this space. Barring one, all players are of similar size. Our competition is not with the other p2p players but with established financial institutions and other investment products like mutual funds/equity/gold etc.

How do you see the market in India evolving over the next 12 to 24 months?   P2P space in India has recently seen a lot of interest after RBI came up with the concept paper on regulating the P2P lending market in India. As soon as regulatory uncertainties are over, this sector will take off vertically and can give serious competitions to many financial institutions. P2P lending in India is going to grow very rapidly in coming days, and we are all geared up to establish ourselves as one of the top players in this space.

RBI says there is need to regulate peer-to-peer lending platforms, (Deal Street Asia), Rated: A

“Given the microfinance episode and the public reaction to failures of unregulated entities, we feel P2P lending platforms need to be regulated, even though they have not yet really taken serious magnitude,” Gandhi said at Mint’s Marketplace Lending Summit on 17 May in Mumbai.

In 2015 alone, around 20 new online P2P lending companies were launched in India. At present, India has around 30 start-ups in the P2P lending business. “The balance of advantage would lie in developing an appropriate regulatory and supervisory toolkit that facilitates the orderly growth of this sector so that its ability to provide an alternative avenue for credit for the right kind of borrowers is harnessed,” the paper said.

 

 

China

China’s Veiled Loans May Prove Lethal,(Bloomberg), Rated: AAA

As many as 15 publicly traded Chinese lenders, large and small, report roughly $500 billion of such debt between them, which they hold not as loans but as receivables from shadow banking products. While the traditional credit business of these banks is 16 times bigger, receivables have jumped sixfold in three years. Explosive growth of this type usually ends badly.

China's lending Boom may prove lethal

There’s plenty that could. The reported nonperforming loan ratio of 1.75 percent is a joke. CLSA says bad loans have already snowballed to 15 to 19 percent of the loan book; Autonomous Research partner Charlene Chu estimates the figure will reach 22 percent by the end of this year. A 20 percent loss on a $500 billion portfolio of loans masquerading as receivables would wipe out 58 percent of annual profit of the 15 banks under our scanner.

The common thread to these products is that they’re all exposed to corporate credit and designed to get around lenders’ minimum capital requirements and maximum loan-to-deposit norms, with scant loss provisioning in case things go wrong.

FinPlus Claims First as China Angel Fund for Fintech, (Crowdfund Insider), Rated: A

FinPlus, backed by Fugel Holdings, launched today claiming to be China’s first angel fund and accelerator focusing specifically on Fintech.

“Ant Financial’s success says it all. The company has recently acquired US$4.5 billion through its series B round of financing in Chinese market and is estimated to be worth US $60 billion in the evaluation that followed. According to market forecasting, the company could be worth as much as the world’s largest bank, Industrial and Commercial Bank of China, if it goes public someday. Ant Finance is also a leading FinTech company in China.”

FinPlus points to recent regulatory initiatives by the Chinese government. Officials are attempting to better control the fast-growing sector of internet finance. Lau believes the Chinese misunderstand Fintech.  He sees the environment as more about taking advantage of the innovation in modeling and theoretical approaches to quickly fill in the blanks in the financial market.

FinPlus wants to invest only in FinTech startups that own “core technologies”.

Lau explained that FinPlus is building an incubating and accelerating system, which will provide support for FinTech projects with full services including angel investment and guidance. FinPlus also said their activities are not limited to China. They will invest worldwide. FinPlus said it is now in discussion with Imperial College London on potential collaboration.

Beijing to Establish Municipal Association to Supervise P2P Online Lending Platforms, (Marbridge Consulting), Rated: AAA

The Beijing Municipal Bureau of Financial Work recently introduced a new “Beijing model” for online finance industry management, which it calls the “1+3+N” model, that includes establishing a P2P online lending industry association to monitor platforms based in the city. The Bureau also said that it will communicate with commercial banks to help finance platforms and banks form funds depository partnerships.

The “1” in the “1+3+N” model refers to establishing an Internet lending industry association, the “3” refers to three mandatory processes including product registration, funds depository management, and information disclosures, and the “N” refers to establishing a series of specialized work committees to address legal, technical, risk control, product, and publicity issues. The Internet lending industry association will be responsible for overseeing P2P online lending platform product registration, funds depository management, and information disclosure.

The Bureau said that platforms must register all lending products, wealth management products, and debt transfer products they offer with the association. Information disclosures should include information about companies, products, and business operations, and company details should cover each business’s operating scope, shareholders, qualifications, licenses, management team, and employees. Business operation information should include company financial data, business areas, partners, ratings, and funds under management.

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