- Lending Times reviewed LendKey’s first Bellwether Report on Private Student Loans on September 14 but raised questions about the default rate graph (see page 3 of the study here). Last week, LendKey’s Salil Mehta, SVP of Credit Risk & Analytics, addressed the data in an interview with Lending Times:
- How does the data in LendKey’s report compare to the 2012 NY Fed Household Debt and Credit Report found here?
- As mentioned in the call, the official data doesn’t represent LendKey’s client constituents in the ways that matter for risk. Our borrowers tend to matriculate at higher tier schools. Additionally, our data it far more real-time, as opposed to the Federal Reserve data, which is very lagged (note their data is from 2012).
- Is LendKey’s data on default rates consistent with other studies in the banking and FinTech industries?
- LendKey has had competitive default rates relative to the industry, in part to a leading proprietary academic credit scoring model that our data science and risk teams have been among the first in the industry to develop, and that provides unique insights to our hundreds of credit unions, at the fraud, underwriting and pricing stages.
- Why does your data show a drop in defaults?
- The entire industry (for LendKey and our peers) have seen a general decline in defaults since 2009-era, which happens to be when LendKey started. However, there are additional factors that come into play, including tighter underwriting standards as well as a change in the judicial climate making dischargeable student debt more difficult in some of our lending states.
- Today’s main news: SEC reviewing Lending Club share buyback; Business Development Company engaging with Lending Club deeper. New record month for Zopa, RateSetter and Funding Circle.
- Today’s main analysis : Car financing in China is hot; Effect of student loans on the millennial’s budget.
- Today’s thought-provoking articles: The BDC – online lender discussion;
- Business Development Companies (BDC) are not very well known by the general public but quite a few industry insiders who have been around for long enough compare BDCs to the present marketplace lending companies. I think BDCs, their history, their stories and their lessons are a great story we should get more inspired from. In all cases, it appears Prospect Capital, a public BDC, is looking to work closely with Lending Club. I have to ask, what exactly is the difference between a BDC and Avant ? What about between BDC and Lending Club ?
- SEC is reviewing if Renaud Laplanche’s share buy back in Lending Club in February (2016?) was done in full disclosure that he had pledged shares personally and a low price would have led to a margin call on his pledge.
- Student Loans are really affecting the average student’s cash flow, retirement and in general their budget. I continue to believe that this trend, created by the governmental subsidies and policies to space, is nonsustainable and it’s just a matter of time until the student loan market will have a 2008 moment.
- We already covered the fact that Prosper is shutting down the secondary market. This particular article is interesting because it also gives some context for the company.
- This article was written for borrowers, but it is inspirational for entrepreneurs : different ways to provide credit to people just above bankruptcy. For lenders: great channels to find the future new borrowers who hopefully learned their lessons.
- This report showing the growth in the alternative credit market in the US was published in April. However, I find it useful to sometimes step back and look at the big picture.
- September volumes published by p2p banking. Funding Circle , Ratesetter, and Zopa have record month.
- Paynet releases a new version of MasterScore, a small business credit score.
- Global M&A aggregate deal value grows in Q3 while the number of deals plunges.
- RealtyMogul eREIT investors get 8% returns on 1st distribution.
- We covered yesterday that the FCA partnered with the Cambridge Center for Alternative Finance. More information on the regulator’s plans and the reasons behind the deal.
- Ratesetter CEO’s interview. The interesting bit : he didn’t want to open Australia but couldn’t say no to the deal he was offered. Ratesetter Australia is an “IP export” with own team and balance sheet.
European Union / Switzerland
- United States
- Is BDC Prospect Capital looking to a tie-up with Lending Club?, (AltFi), Rated: A
- LendingClub Probe Said to Review Buyback as Laplanche Faced Loss, (Bloomberg), Rated: AAA
- Student Loans Putting a Hole in Retirement Savings for Millennials, (Plan Sponsor), Rated: A
- Prosper Shutting Down Secondary Market For Loans Later In October, (Pymnts), Rated: A
- Should Bankruptcy Stop You From Getting A Personal Loan?, (The Global Dispatch), Rated: A
- The Americas alternative finance market accelerates its 3-digit growth in 2015, (SMB Weekly), Rated: A
- International P2P Lending Services – Loan Volumes September 2016, (P2P-Banking), Rated: AAA
- PayNet Releases MasterScore for Alternative Lending, (Email), Rated: AAA
- Global M&A value climbs against decline in volume in Q3 2016, (Bureau Van Dijk), Rated: AAA
- RealtyMogul’s Investors Snag 8% Dividend Payout on New MogulREIT I Income REIT (Email), Rated: A
- United Kingdom
- FCA enlists University of Cambridge to review P2P market, (Professional Adviser), Rated: A
- Rhydian Lewis, CEO of Ratesetter Thinks Global, (WorldFirst), Rated: A
- European Union / Switzerland
- SwissLending launches real estate crowdlending platform, (Finextra), Rated: A
- Car financing a new bright spot in Chinese economy, (SCMP), Rated: A
- China’s outstanding P2P loans hit record high in September, (ECNS), Rated: A
Is BDC Prospect Capital looking to a tie-up with Lending Club?, (AltFi), Rated: A
Peer-to-peer and marketplace lending platforms and Business Development Companies (BDCs) have been increasingly mentioned in the same breath, now synergies may be starting to occur.
Prospect Capital, which has a $2.9bn market capitalisation, has previously been a buyer of US platform OnDeck’s loan book. During the year ending June 30, 2016, it purchased $68.8mof small business whole loans from OnDeck.
Now, according to the reports it has entered into an arrangement with Morgan Stanley to bring a $150m book of seasoned Lending Clubloans to market.
Prospect Capital normally invests in private and mezzanine debt as well as private equity and currently has a debt to equity ratio stood at 69.5 per cent. It invests primarily in first-lien and second-lien senior loans and mezzanine debt, which in some cases include an equity component, providing capital to middle-market companies and private equity financial sponsors for re-financings, leveraged buyouts, acquisitions, recapitalisations, later-stage growth investments, and capital expenditures.
It listed on the New York Stock Exchange in 2004 and including its October 2016 distribution, assuming our current share count for upcoming distributions, has distributed $15.12 per share to initial shareholders, exceeding $2.0bn in cumulative distributions to all shareholders
Since its IPO 12 years ago, it has reported net asset value (NAV) per share of $9.62 with a current dividend yield of 12 per cent based on closing stock price of $8.48. Its last distributable income was $96.6m or $0.27 per weighted average share, exceeding dividends by $0.02 per share.
LendingClub Probe Said to Review Buyback as Laplanche Faced Loss, (Bloomberg), Rated: AAA
Wall Street’s top cop is scrutinizing whether the founder of LendingClub Corp. advocated for the company to prop up its shares without telling the board about a possible conflict of interest, according to people with knowledge of the matter.
the U.S. Securities and Exchange Commission is reviewing Renaud Laplanche’s role in a $150 million share buyback approved in February, said the people, who asked not to be named because details of the probe aren’t public. Laplanche, who was chairman and chief executive officer at the time, had pledged some of his shares as collateral for a loan and was required to put up more money if the stock slid below a certain price, the people said. As it turns out, the share rally didn’t help Laplanche. In addition, LendingClub was barred at the time from repurchasing shares until its next earnings report, the person said.
If a CEO’s personal business dealings are tied to the share price it’s “clearly the kind of thing” that should be disclosed to the board, said Jill Fisch, a corporate governance expert at University of Pennsylvania Law School.
The SEC initially opened an investigation into San Francisco-based LendingClub to review the company’s disclosures that dates on loans sold to Jefferies Group had been altered and that the board hadn’t been informed of Laplanche’s investment in a firm that posed a potential conflict. The probe has since expanded, the people said.
To avoid having to sell some of his shares to raise cash, Laplanche borrowed money from fellow director John Mack, the former chief executive officer of Morgan Stanley, according to a person familiar with the matter.
In April, LendingClub disclosed a new policy that requires executives to get approval from its general counsel and inform the board’s audit committee before pledging LendingClub securities as collateral for a loan or holding them in a margin account.
Student Loans Putting a Hole in Retirement Savings for Millennials, (Plan Sponsor), Rated: A
For many Millennials, student loans are delaying important financial decisions. The most frequently cited include saving for retirement (38.7%), buying an automobile (44.74%), purchasing a home (45.31%) and traveling (53.27%).
When asked how much student debt affects spending ability, 30.54% answered, “Very much;” 30.40% answered, “Somewhat;” and another 14.91% said “very little.” Slightly less than one-quarter (24.15%) reported that their student loan debt had no effect on their spending habits.
LendingTree’s research also offered some insight into how Millennials would treat excess funds if student loans were hypothetically absolved. Respondents said this money will go toward saving for emergencies (53.98%), buying a home (41.76%), saving for retirement (31.68%), or travel and vacations (31.25%).
According to LendingTree’s research, the average salary for employed Millennials is $48,146. When considering factors such as taxes, Social Security payments, and insurance costs, the average Millennial is taking home 70% of gross income or $2,808 per month in this example. The study also found that student loan debt consumes about 11.3% of the average Millennial’s net monthly income.
More than half (55.9%) of those surveyed have feelings of financial regret related to their post-secondary education.
These findings are from a survey of 1,338 Millennials, defined as those born between 1980 and 1995, who enrolled in at least some post-secondary education. According to the survey, 63.3% of this group graduated or will graduate with student debt, and 46.5% currently owe student loans.
Prosper Shutting Down Secondary Market For Loans Later In October, (Pymnts), Rated: A
Comment: we have covered these news extensively. However the context is very well included in this article.
The move on the part of Prosper comes at a time when the company is exploring strategic options, having hired investment banks JPMorgan and Financial Technology Partners and having disclosed it is considering selling equity in the firm. Media reports said the privately held U.S. online lender is mulling the equity raise because, in part, the firm needs to tap markets to raise more money and strengthen balance sheet holdings. Specifically, the capital would improve funding sources. Equity sales could run the gamut between minority and majority stakes. As has been noted widely in the financial press, the industry itself has been buffeted by news that has been enough to make investors shy away from buying loans.
Should Bankruptcy Stop You From Getting A Personal Loan?, (The Global Dispatch), Rated: A
Having filed for bankruptcy doesn’t make the possibility of getting a personal loan zero.
Secured Credit Cards: The First Step in How to Get a Loan After Bankruptcy.
We have two kinds of personal loans: the secured personal loan and the unsecured personal loan. As for a secured personal loan, for those with credit issues, just relinquish your property or deposit cash to the lender.
Bad-Credit Personal Loan Lenders. You need to provide data on your savings as well as your home and car. Whether you’re going to qualify for a secured or unsecured personal loan will depend on your credit.
The Americas alternative finance market accelerates its 3-digit growth in 2015, (SMB Weekly), Rated: A
Comment: this report was published in April during Lendit. However I find it useful to sometimes step back and look at the big picture.
In 2015 the Americas alternative finance industry grew 212% from 2014, to reach a volume of $36.49 billion, shows a benchmarking report of the Cambridge Centre for Alternative Finance (CCAF), in partnership with KPMG and the CME Group Foundation. For comparison, in 2014 it was $11.68 billion and grew 162% from 2013.
In the period 2013-2015 the alternative lenders delivered more than $50 billion in funding to individuals and businesses, with the US having the lion’s 99% share of the total volume.
The US is also the second-largest alternative market per capita, after Mainland China, with $113.43. In comparison, China’s per capita volume was $74.54. Canada, which comes in second in the Americas market, has barely $5.82 per capita.
The Latin Americas and the Caribbean regional market is negligibly small, but nevertheless has achieved a 130% in 2015, to reach $110.46 million.
Another finding of the CCAF dwells on the entrenched institutionalization of the US loan market, in contrast to the UK alternative finance market where the lenders are predominantly retail investors. Between 2013 and 2015 more than 72% of the alternative business loans and 53% of the consumer loans were funded by institutional investors. The institutional lending is even deeper entrenched in invoice trading – 84% and real estate loans – 74%. Among the institutional lenders are mutual funds, pension funds, hedge funds, family offices, asset management firms and traditional banks.
International P2P Lending Services – Loan Volumes September 2016, (P2P-Banking), Rated: AAA
Comment: Lending Times covers broker’s volume (here is the page) as well for free.
Funding Circle, Ratesetter and Zopa had a record month. The total volume for the reported marketplaces adds up to 424 million Euro. I track the development of p2p lending volumes for many countries. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services. Milestones in total volume originated since inception:
PayNet Releases MasterScore for Alternative Lending, (Email), Rated: AAA
PayNet, Inc., the nation’s small business credit expert, announces the release of the new PayNet MasterScore for Alternative Lending, the first ever pooled-data score for the Alternative Lending space. This score, which is a coming-of-age milestone for the industry, will help alternative finance lenders enhance their credit decisioning and increase profitability.
The over 25 million private U.S. companies constitute a $4 trillion credit market. Alternative lenders are becoming a more integral source of credit for small business growth providing over 100,000 loans totaling approximately $5 billion to small businesses in 2015.
This new score builds on PayNet MasterScore v2 by bringing in additional variables and by optimizing specifically on a population of Alternative Loans and Merchant Cash Advances originated by a wide range of Alternative Lenders.
Global M&A value climbs against decline in volume in Q3 2016, (Bureau Van Dijk), Rated: AAA
Global PE investment declines by volume and value Both the volume and value of private equity and venture capital (PE and VC) activity declined in the third quarter of 2016, with volume hitting its lowest ebb since Q4 2011, when 4,574 deals were announced. In all there were 4,713 deals worth USD 139,141 million in Q3 2016. This represents a weakening of 10 per cent in volume and 9 per cent by value from 5,252 deals worth USD 153,316 million in Q2 2016, while the decline was even steeper when compared to the same quarter in 2015 (Q3 2015: 6,577 deals worth USD 186,614 million).
The value of global mergers and acquisitions increased in Q3 of 2016, marking the second straight quarterly improvement. According to information from Zephyr, the world’s leading M&A database, Q3 featured 19,416 global transactions worth an aggregate of $1.194 trillion.
Despite the rise in value, the volume of deals declined in Q3 for the fifth consecutive quarter, slipping 19% from Q2. Activity dipped even more when viewed year to year, down 29% in volume and 23% in value compared to Q3 2015.
RealtyMogul’s Investors Snag 8% Dividend Payout on New MogulREIT I Income REIT (Email), Rated: A
RealtyMogul, the online marketplace for commercial real estate investing, has announced its MogulREIT I declared a $0.10 dividend for investors. This equates approximately an 8% return on an annualized basis at a $10 per share price, calculated for the period beginning August 15, 2016 and ending Sept. 30, 2016.
The 8% annualized return represents a significant premium over other, non-traded REITs, which on average achieve a 5.4% annualized dividend, according to a recent report from The Stanger Report™.
RealtyMogul.com launched the income REIT in August with the aim of helping to democratize real estate investing. Structured as a real estate investment trust (“REIT”) with a minimum investment of $2,500, the REIT is open to nearly all investors and offers the potential for consistent cash dividends and equity appreciation.
FCA enlists University of Cambridge to review P2P market, (Professional Adviser), Rated: A
Together with the CCAF the FCA will seek to identify any changes to the nature of the industry, consumer expectations, and its place in the financial services landscape. They will also look at whether the area needs tougher regulation.
The regulator is planning to tighten due diligence rules for crowdfunding and P2P lending amid concerns over investor risk.
It said: “We are currently conducting a post-implementation review of the crowdfunding rules, to see whether the market has evolved in such a way that we need to consider changes to the rules.
Currently, P2P investor platforms do not have to adhere to specific levels of due diligence but are allowed to develop their own approach to researching the investments they offer.
Rhydian Lewis, CEO of Ratesetter Thinks Global, (WorldFirst), Rated: A
Yes, we exported our IP by launching RateSetter Australia in 2014. RateSetter Australia has a separate management team and balance sheet. We didn’t set out to launch there, but we were presented with a particularly compelling opportunity.
European Union / Switzerland
SwissLending launches real estate crowdlending platform, (Finextra), Rated: A
SwissLending, a new player within the FinTech ecosystem and the first crowdfunding platform in Switzerland specializing in loans for real estate professionals, is officially launched this week in Geneva.
Car financing a new bright spot in Chinese economy, (SCMP), Rated: A
The vehicle loan market has grown exponentially in China during the past decade. The outstanding amount jumped to 670 billion yuan last year, compared to 5 billion yuan in 2005, consultancy Forward Business and Intelligence said in a report.
The penetration of auto financing in China is still lagging far behind developed markets such as the United States where about 70 per cent of car buyers use loans to finance their purchases.
It was not until 2014 that a soaring number of mainlanders, particularly those aged between 20 and 40, started to use auto financing services to buy a car. Vehicle ownership is seen as a symbol of luxury and success in the country.
Car buyers in China now have access to loans from banks, auto financing firms and online peer-to-peer (P2P) lending platforms.
A quarter of Chinese car buyers have borrowed money to finance their purchases, and the percentage is set to top 30 per cent soon, according to vehicle information website Autohome.
P2P charges a higher interest rate, but it offers an alternative to banks and auto financing firms because some of the buyers are unable to secure a loan from those institutions,” said Steve Shi, a manager with Juchen Auto Trade, an auto service firm. “It’s inevitable that some loan defaults occur, but the bad-loan ratio seems controllable.”
ABS allows the financing firms to sell off their loans to other investors while freeing up more money that can be lent to new customers.
According to Fitch Ratings, the average cumulative default rate for Chinese auto ABS was below 1.5 per cent at the end of June, 2016.
“Overall, the performance of auto-loan ABS hasn’t seen major deterioration despite slowing economic growth,” Fitch said in a research report.
Fitch expects delinquency rates will edge up as economic growth is expected to drop to 6.5 per cent this year, the slowest pace since 1990.
China’s outstanding P2P loans hit record high in September, (ECNS), Rated: A
Outstanding peer-to-peer (P2P) loans in China soared 153.5 percent year on year to hit a record high at the end of September, a latest industry report showed.
Loans had reached 956 billion yuan (145 billion US dollars) at the end of September, according to P2P industry portal P2P001.com.
The average interest rate for P2P lending stood at 8.7 percent, unchanged from a month earlier and still near a record low.