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Topics - Fred93

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1
WSJ is paywalled.  Article says banks don't know who is going to pay them back, so they are pulling back across the board.

https://www.wsj.com/articles/flying-blind-into-a-credit-storm-widespread-deferrals-mean-banks-cant-tell-whos-creditworthy-11593423001?mod=hp_lead_pos5
Quote
...Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports.

The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies. From March 1 through the end of May, Americans deferred debt payments on more than 100 million accounts, according to credit-reporting firm TransUnion, a sign of widespread financial distress.

The credit blind spot has further clouded the outlook for lenders.  ...

Interesting that the legislators wrote into the law a provision to keep banks from reporting deferrals, in the hope that deferral would not reduce availability of credit to these individuals, and this has had the opposite effect of the one desired.  They've reduced the availability of credit to everyone. 

LC sees this pullback as their customers (banks, who buy loans from LC) disappearing.


2
Investors - LC / hardship fields in spreadsheet wrong
« on: May 08, 2020, 07:37:10 PM »
I sent this to LC today...

Quote
From:      xxxxxxxxxxxxxxx
To:      support@lendingclub.com
Subject:      hardship fields in notes spreadsheet are wrong
Date:      Fri, May 8, 2020 4:34 pm

On the "notes" web page, there is a link to download a spreadsheet containing info on all the notes in one's account.

That spreadsheet for some time now has had incorrect information in all the "hardship" columns.  Notes in hardship plans are not flagged as they are supposed to be.

The only way a customer can learn that a note is in a hardship plan now is to look at the note's DETAIL page, and this is cumbersome to the point of being unworkable for folks with 10,000 or 20,000 notes!

Please fix the spreadsheet.

Example...
Loan id: 142417793
Note id: 192978176

This loan is in a hardship plan, as shown on the loan detail web page.  However the hardship flag column contains an "N" on the spreadsheet, and all the other hardship columns are blank.

This is just one example.  There are a great many of these nowadays.

The lack of information on the notes or account summary pages and the incorrect/missing information on the spreadsheet leaves retail customers no way to track the true status of their loans.  It would appear, just looking at dates of last payment, like about 11% of loans are now on hardship plans.  This is a significant impairment, so should be mad visible to customers.



3
General Lending Club Discussion / LC workforce reduction
« on: April 23, 2020, 01:00:30 PM »
On April 20, 2020, LC filed an 8K with SEC containing the following text...

Quote
COVID-19 is having an unprecedented effect on consumers, small businesses and the broader economy, including the credit markets, and has resulted in a current reduction in platform investor demand for personal loans. In response, the Company has undertaken a number of initiatives to support its borrowers, protect investor returns, and preserve capital and liquidity. These initiatives better position the Company to navigate and serve members through today’s economic environment and over the longer-term as the need for the Company’s services grows.

On April 20, 2020, the Company’s Board of Directors (the “Board”) approved a restructuring plan (the “Plan”) to further address the impact of COVID-19 on the Company’s business by repositioning the Company’s expense base to better reflect current loan volume and better position the Company for profitability to achieve its strategic goals when the economy and business stabilizes. The Plan includes workforce reductions affecting approximately 460 employees.

In connection with the workforce reductions under the Plan, the Company expects to incur total pre-tax restructuring and related charges of approximately $10 million during the remainder of the year ending December 31, 2020, of which approximately $1 million represents an employee relief plan to assist impacted employees through this challenging time and the remainder represents future cash expenditures for the payment of severance and related benefits costs.

LC has spent years moving away from the retail investors to banks, who are now not buying.  Well.  Can't say we didn't warn 'em.

30% layoff is a pretty big step.  The demand problem must be severe.

Remember... this is a company that has essentially never been profitable, but has been "investing" for 10 years in building volume.

4
Investors - LC / LC interest rates huge update 3/30/2020
« on: April 15, 2020, 12:19:09 AM »
LC made a huge change on 3/30/2020, increasing rates for high quality loans by 2%, medium quality by 3%, and low quality loans by 4%.  Quite different than the tiny meaningless rate adjustments of the past. 

Then 10 days later, they announced that there would be no more grade D loans issued.  I suppose this opens the possibility of future rate increases for C grade loans.

Of course we still cannot judge what the change in default rates will be in light of the Covid-19 events.


5
Article in WSJ today about China's P2P lending businesses, and how they're dying off. 
https://www.wsj.com/articles/chinas-once-hot-peer-to-peer-lending-business-is-withering-11580644804
The article is paywalled.  I've included a few snips below.

I've written here before about how many (huuuuge numbers) of these P2P businesses started up in China.  It was clear this was a bubble.  We use the term "Wild West" to describe an unregulated frenzy, but maybe we should change that to "Wild East".

Quote
China’s peer-to-peer lending industry, once a world-beater, is on its last legs.

Entrepreneurs had hoped to fill a gap in the Chinese financial system ignored by state-backed banks. Thousands of peer lenders flourished, gathering funds from small investors and extending credit to family restaurants, parents with tuition bills to pay and other small borrowers. Several larger players such as Yirendai Ltd., PPDAI Group Inc. and Qudian Inc. went public in the U.S.

But a dramatic reversal in official attitudes has made life much harder for peer-lending entrepreneurs such as Darwin Tu. His lending platform, Super Credit, at its peak boasted roughly 3,000 employees, more than 100 branches, and international expansion plans. It is now down to a single modest office in Beijing and a few dozen staff.
...

The article seems to blame the decline on regulators, but I don't agree.  The rise of thousands of small P2P lending companies was a frenzy and a bubble, and even without the help of regulators, most of them surely would have failed, taking down Millions Billions of dollars worth of investors savings with them.  Regulators had to act.  As we know from the history in the US, the whole P2P idea simply hasn't worked out long term as well as initial dreams indicated.

Look at these charts!

Oh man.  THOUSANDS of little companies, come and gone...  We think about a handful of companies in the US.  A few handfulls in Europe.  There were THOUSANDS of them in China, and still are HUNDREDS. 

We recognize the peak of this curve corresponds to the peak enthusiasm in the US too.


Interestingly, as the # companies peaked in 2016, the number of loans kept increasing.  Levelled off in 2017, and the big decline in loans started in 2018.  This big decline does look like a regulatory hammer.


Quote
Early last year, national authorities said platforms that didn’t meet regulatory requirements needed to be shut, leading many provinces to say they would close all peer lenders. The number of lending platforms has dropped to less than 400 from a peak of more than 3,500.

In November, authorities gave the remaining peer lenders at most two years to exit from the industry. If they want to continue they can become pure intermediaries, helping banks find small-business customers, or they can transition to providing small cash loans.

Huh.  That transition to intermediaries is what is happening in the US without being forced by regulators.  So same thing is happening in China, but with different dynamics.

The incredible frenzy that we saw in China never happened in the US due to fed & state regulators getting engaged quite early in the development of this industry.


6
Investors - LC / LC is ending whole-loan note sales next week
« on: January 23, 2020, 03:34:47 PM »
LC's support of the retail market is taking a big hit a few days from now.  This doesn't affect most of you directly, but it does affect me in a big way.

As most of you know, in the retail market, there are two kinds of notes sold by LC.  "fractional" notes represent a fraction of a loan, and "whole" notes represent an entire loan. 

LC has advised me that beginning 2/1/2020, LC will no longer offer whole notes.

In the beginning (2008), LC offered their product only in the form of notes, but as time went on and LC acquired more institutional customers, hedge funds, banks, etc, they evolved new forms of their product, where they sell the loans themselves (instead of an LC-issued note), or things called "certificates" or syndications.  Most institutional customers moved to these new forms of product.  Now the selling of notes is a small part of their business.

They haven't said what this will mean for the volume of product made available to the retail market.  I suspect that it means I will be forced to greatly reduce the size of my account, because I simply won't be able to keep the money invested.  I deposited my first money with LC on 1/24/2008.  Its been a nice run.

I suspect that there aren't very many of us whole-note-buyers any more, and it has become a burden to LC to support this niche containing few customers.

LC has suggested that I open an institutional account, and buy loans rather than notes.  This would require me to create an LLC, which would require me to pay LLC fees and taxes to the state, and file an additional tax return to both state and federal govt, and thus take on new accounting costs, and some new legal issues related to owning "loans" which I don't yet fully understand.  I've been intending to hire a lawyer to educate me about those regulatory issues and liabilities, but I haven't made that happen yet.



7
Investing - General (not P2P) / Steel Parners Holdings
« on: December 02, 2019, 03:38:00 PM »
SPLP

An unusual company.  A small conglomerate of various industrial materials mfg companies and Web Bank.

Web Bank is the bank that issues loans for the various small lending companies like Prosper and LendingClub.  You need the bank in the middle for some obscure old regulatory reason.  I always figured that was a good business, 'cause they're about the only folks doin' this.

Someone else here followed SPLP  I seem to recall.

One funny thing about the business is that about half the stock is owned by insiders, and they don't seem to run the thing to make a profit.  Earnings are a "sometimes" thing, bouncing around in a seemingly random fashion.  I believe that this is just a nontraditional motivation at the top.  They aren't driven by the usual wall street approach of drive earnings to make shareholders happy.

Meanwhile, they continue to ramp sales, and buy back shares every year.

So this looks like a possible good thing, but the darn stock price keeps goin' down.  I wonder if there's stuff I don't understand.

I've tried reading the 10k, but it is complex, due to the mix of businesses, and constant background of acquisition things going on, and while I'm pretty good at reading a straightforward 10K, I'm no accountant, so I don't believe I really understand all I see there.

Anyone have thoughts on SPLP?



8
Investors - LC / LC new interest rates Aug 2019
« on: August 07, 2019, 08:22:02 PM »
As investny pointed out in the other thread, LC has changed interest rates again, only 1 month after the last change.



An unusual change.  Only D rates were changed.  It really looks like a fix for mistakes made last month.  One of the odd things about last month's rates was that C5 and D1 bumped into each other, having almost exactly the same rate.  This month's change has D1 moving up away from C5.  .. and some smaller changes in D2, D3, and a tiny change in D4.

9
Investors - LC / LC new interest rates July 2019
« on: July 09, 2019, 05:31:17 PM »
LC adjusted their interest rates as of 7/6/19, and has announced that there will be no more E loans.  (They had previously killed off F&G loans tho they continued to publish interest rates for these nonexistent loans, so I plotted them.)

I've updated my interest rate charts.  Here is the recent history of LC interest rates vs time...


You can see that they've discontinued E, and spread out the D interest rates to cover the territory previously occupied by E loans.  A few years ago when they were pushing for volume, they degraded the quality of E,F,G loans so that they were no longer a good investment.  D loans are more like what E loans were a few years ago. 

They also increased (a little bit) the interest rates in B and C. 

One bizarre detail...  They did not increase the D1 rate.  C5 and D1 are now almost exactly the same rate.  This looks very strange, but there is a clue.  Note that the D1 rate has been stuck at 17.97% for the last few update cycles.  That's just barely below 18%.  My guess is that there is some state with an 18% limit, and they're holding back on D1 artificially to keep it under the limit. 

Another way to look at this data is to draw curves vs grade.  Its difficult to follow which curve is which, but the most recent yellow curve sticks out clearly.  The D1 kink also sticks out clearly.

11
Investors - LC / LC loan quality shift April 2019
« on: June 04, 2019, 05:01:45 AM »
Starting in the first few days of April 2019, I am suddenly unable to reinvest the loan payments being deposited in my account.  Cash is piling up.

The cause of this is a shift in the notes that LC is offering.  I invest via the LC API in both whole and fractional notes.  The total number of loans LC is offering these days is lower than it has been in the past, and the quality has shifted.  Very few notes now meet my criteria.  I bid on all of the ones that do, and win a significant fraction of those I bid on, and yet cash keeps building up in my account.

I complained to LC.  Told them they were driving customers away.  They denied it.  The usual "You are very important to us." nonsense. 

As a result of this, I've been transferring money out of my LC account.  Does no good to keep it there if I can't invest.

I have loosened my filters a bit, but this has not produced any significant improvement. 

I told LC they are driving retail customers away.  They deny it.  ...but it's true. 

My theory is that as their business shifts to mostly one of selling packaged products to banks, they are intentionally ramping down the note business.

12
Investors - LC / LC increases interest rates 11/8/2018
« on: November 09, 2018, 02:22:49 AM »
This time the increases are only in A and B grade loans.  Correct direction, but change is too small.

Each line is one grade.  The dots on the bottom line mark the dates that interest rates were changed by LC.


13
General P2P Lending Discussion / FICO score inflation
« on: October 22, 2018, 12:05:07 PM »
This image appeared recently in the WSJ. 

What do you think about this?  Does it show that US borrowers have all been getting a lot better during the last 8 years?  Or does it show that FICO scores have been inflating for the last 8 years?

I believe it is some of each.  The chart starts at the time of the financial crisis, when lots of people were having some trouble, and just about everything has gotten better since then.  However, we know that there was some difficulty in borrower-land in 2015/6 because we saw huge dips in performance of LC and Prosper loans, and also dips in performance of subprime auto loans.  That certainly is not indicated here.

14
Suggestions / search for all messages from a particular member
« on: September 11, 2018, 06:54:56 PM »
Is there a way to do this?

15
SCMP is South China Morning Post, a well-respected English language Chinese newspaper.

https://www.scmp.com/news/china/economy/article/2159372/china-comes-10-measures-tackle-risks-troubled-p2p-lending-sector

https://www.scmp.com/tech/china-tech/article/2156832/chinese-peer-peer-pioneer-defends-industry-after-wave-defaults
As many as 114 P2P platforms failed from July 1 to July 24, with 14 shutting down without warning, 97 suspending fund withdrawals after facing liquidity problems, and three under official investigation, according to online P2P data provider Wangdaizhijia.

https://www.scmp.com/business/companies/article/2155839/shanghai-savers-sound-alarm-more-p2p-lenders-fail-return-funds

https://www.scmp.com/business/companies/article/2155357/investors-left-rue-losses-fraudulent-chinese-p2p-lenders-collapse

https://www.scmp.com/business/banking-finance/article/2158533/police-thwart-protest-rallies-victims-chinas-underground

An unknown number of Chinese investors who have lost their life savings in the country’s peer-to-peer (P2P) lending industry mounted a failed attempt at a demonstration before the banking regulator on Monday, amid heavy intervention by the police in Beijing’s financial district.

Hundreds of uniformed police, ancillary police and plain clothes officers patrolled several city blocks around Finance Street, where the central bank, as well as the regulators for stocks, banks and insurers are located.

Alex Li, a 35-year-old organiser of the demonstration, said disgruntled investors from all corners of the country had gathered in the capital city over the weekend to petition the central government.

“At least 8,000 investors have made it to Beijing,” Li said by phone from Beijing. The number could not be immediately verified.

Hundreds of investors had attempted to gather outside the head offices of state agencies on Monday, including the China Banking and Insurance Regulatory Commission (CBIRC), to press for an official investigation into the suspensions of fund withdrawals in more than 100 lending platforms last month,


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