Tag: finance

Are the big institutions embracing the wisdom of Crowdlending?

Author
Angus Dent
Date

The fallout of the stress tests has generally been good news for the Banks. As I discussed in my earlier post, Standard Chartered and Royal Bank of Scotland, however, struggled and only got over the line by promising to keep back more capital. RBS announced that they had shed some of their riskier assets, including Irish property loans to the tune of £1.62 billion that seemingly had the potential to bring rich reward; the spectre of the burst of the Irish property bubble clearly enough to put the bank off. Therefore, it isn’t exactly a surprise that RBS recently announced plans to lend money to mid-sized businesses in conjunction with three global asset managers, namely AIG, M&G and Hermes Investment Management. The partnership will aim to provide finance to between 75 and 80 mid-sized businesses with loans ranging from £25 million to £100 million.

The partnership will allow RBS to benefit from extra due diligence carried out by the asset managers, as well as allowing the bank to further diversify risk. The funds benefit from exposure to an established market that was previously restricted to traditional finance providers. However, the link comes as a result of asset managers increasingly acting as “shadow” banks with companies approaching them for finance. The new partnership will see RBS continue to carry out the brunt of client negotiation directly with the borrower, whilst the asset managers carry out their own due diligence and credit analysis.

The primary (only) benefit to the borrower would be the consolidation of parties to negotiate with; however I would reason that dealing with scrupulous, profit driven asset managers alongside the sluggish, outdated bureaucracy of the banks will hardly speed the process up for borrowers. The relationship is aimed at a niche group of businesses that are already backed by private equity companies, so the move to “Crowdlending” is certainly a tentative, experimental one. It does nothing to combat the issue that the banks aren’t lending to SMEs, the lifeblood of the British economy. But it does show that the banks are willing to share their clients with other finance providers to ensure that a solution is available.

This is all very good news for Peer to Peer Crowdlenders who aim to fill the SME finance gap: expect to see more partnerships with banks emerge that allow banks to continue to lend to small businesses to the extent that their capital resources allow, with specialist crowdlending platforms plugging the gap. Indeed, only yesterday, AltFi reported the news that ThinCats had sold a 73.4% stake in the company to ESF Capital, a European specialist investment firm, in the process appointing ESF Capital CEO John Mould as ThinCats CEO. The view here is that the linking with an investment firm will bring significant new money to lend SMEs, and Mould’s appointment will certainly facilitate that. After all, Mould is the former COO and CFO of the aforementioned Hermes Investment Management- RBS could be the first of the “Big Four” banks to start lending across a Crowdlending platform to UK SMEs; and in all likelihood it will be followed by the others.

Crowdfunding the Gaming Industry

Author
Angus Dent
Date

An article in the Financial Times today highlighted the difficulty that the UK’s creative industry has had in securing funding from banks since the government started to advocate investment into the tech start-ups. The article specifically makes reference to the government-backed British Business Banks’s investment in a private equity fund worth £40 million that focuses on nascent media and gaming companies. Britain certainly can boast a range of success stories; King Entertainment, manufacturer of the omnipresent (and entirely vacuous, in my view) Candy Crush, was sold for $5.9 billion.

British Business Bank

The majority of gaming companies however, fall into the SME bracket, and won’t suitable for the PE funds: the aforementioned fund run by Edge Investments will only back between 12 and 15 companies. Moreover, they have fallen victim to the bank’s decision to withdraw funding to small businesses; software companies are particularly vulnerable to “computer-says-no”-ism of the banks. Some of the biggest success stories of the past are subsidiaries of much bigger companies but continue to operate under their own brand name. For instance, Sports Interactive Ltd, the creative studio behind the Football Manager games, were able to benefit from the support of Japanese giant Sega. The company was initially loss making, however the profits have steadily increased to over £3 million last year.

Sports Interactive_0

Yet most games manufacturers are run by enthusiasts who aren’t happy to just sign over all of the equity in their business to a big corporate. Reward-based crowdfunding has been a fantastic way to exploit the willingness of fans to take a small portion of equity in a games manufacturer along with “tangible assets” such as a copy of the game, and the less tangible reward of increased standing within the game itself. The business is able to hold onto most of its own equity but can still receive funding. See my article on the success of Star Citizen for an example of the potency of gaming fans to drive a company’s growth projections through the roof. The article can be found here:  https://www.archover.com/demystifying-crowdfunding-part-1-donation-and-reward-based-crowdfunding/.

Yet there is every chance that a novel concept without an entrenched fan base could go unfunded. However, there is still the option of debt-based P2P lending if directors and major shareholders are unwilling to dilute their share in the company. Enthusiasts could invest in the business without the risk of just an equity stake, and established SMEs could continue to grow the business organically without the need to handover their brainchild to a corporate. Established companies with a debtor book to match, often funded by sponsors hoping to flog their product into the subconscious mind of the avid gamer, have consistent revenue streams from blue-chip sources. Sports Interactive, after all, had over £20 million worth of debtors in 2014, up from £16 million in 2013. These debtors were made up of retailers and sponsors keen to have their brand represented in the game. P2P lending could be the answer to the next generation of gaming companies looking to follow in their footsteps.

 

 

 

Bankers’ Conduct: Yet another reason why SMEs and savers are avoiding the Banks

Author
Angus Dent
Date

Potential misconduct by bankers has been included in the banks’ compulsory stress checks carried out by the European Banking Authority. Good news? Well, partly. Their hand has been forced by the stark reality that banks see litigation costs as a result of foul play by their employees as part and parcel of operating cost. This isn’t exactly a morsel, either; poor conduct accounts for 7.5% of the average bank’s operating cost, according to The Group of Thirty, an international body of financiers and academics charged with examining the consequences of private and public sector issues.

Holding back capital to account for misconduct is not the same as trying to stamp out misconduct. The rather feeble ruling lacks the teeth to punish the banks for continuing the attitude of short-termism that provided the stimulus for the financial crisis in 2008: bankers can still get away with borrowing short-term, lending long-term and apply the leverage by borrowing from each other. The bonus culture that was so vehemently criticised is still prevalent. Those who wished for prison sentences, confiscation of funds and other sanctions for the culprits of the financial crisis won’t be celebrating this new ruling. The cost of covering for this misconduct is likely to be keenly felt by ordinary savers and SMEs who find access to finance increasingly difficult to access.

The “conduct” ruling comes in light of the new stress tests that global financial regulators hope will force banks to hold sufficient capital in their reserves to absorb an economic downturn. The figure bandied around in the US press is a staggering $1.19 trillion of debt that can be written off when the banks fail. This will take away billions of pounds, dollars and euros, all of which could be lent out through directly matching lenders with borrowers. The fall guys? UK SMEs with restricted access to finance, and savers stuck with the miserable gruel of savings accounts and ISAs. The Solution? P2P Lending matches up lenders and borrowers, cuts out the banks and middle men and allows SMEs to benefit from the wisdom of a crowd. Ultimately it is a huge fillip for the global economy: surely the band of global regulators should spend less time trying to shore up a broken model that puts social cohesion and economic solidity at risk, and more time focussing on producing fully regulated P2P lending platforms.

The momentum is already shifting away from the banks: including the conduct of bankers in the stress tests is not the answer for the regulatory authorities. Investing in P2P will ultimately benefit SMEs, the lifeblood of any developed economy, and savers who can earn decent interest on their savings by matching directly with borrowers through secure, regulated platforms.

Crowdnetic’s Crowdfinance 2015 – Panel: Europe, the View Europe

Author
Hugo Smyly
Date

Europe and in particular the UK leads the world of alternative finance and crowdfunding. ArchOver took part at Crowdnetic Crowdfinance event in New York providing a view of the alternative finance landscape in Europe. ArchOver and Angus Dent were joined on the panel by Assetz Capital, Bondora, and  Money&Co.