Tag: p2p

Switzerland

Author
Angus Dent
Date

Switzerland is widely recognised as having one of the most independent, prosperous and stable economies in the world, which is why for decades nervous investors have regarded the country as a safe haven for their money in times of global turbulence.

In 2014, when Russia was facing huge problems and money was pouring into Switzerland chasing up the local currency, the Swiss National Bank surprised the world by dropping the domestic Base Rate to minus 0.25% in a determined effort to weaken the value of the Swiss Franc because it was damaging the country’s export effort. Today, and for the same reason, Switzerland’s Base Rate stands at minus 0.75%.

Although the Swiss economy has had two relatively sluggish years in 2015-16, it is expected to grow by around 1.5% in 2017. Yet Bond yields remain at minus 0.19%, which hardly provides rich pickings for local yield-hungry investors who, per capita, are reckoned to be the world’s wealthiest.

Back in the UK, we have a parallel situation regarding low fixed interest returns and following our decision to leave the EU – an organisation with which, of course, Switzerland has never been integrated – we are moving to a position where we will have even more in common.

The one crucial difference from an investor’s point of view is that the UK has developed some attractive alternative asset forms, such as P2P loans the demand for which is booming. Yields of 6% and more are commonplace which, bearing in mind the relative security provided by the larger platforms through provision funds or, in ArchOver’s case, credit insurance, represents something approaching a decent return.

No one is pretending that P2P loans are risk free – of course capital can be at risk – but many individuals and institutions have decided that, given all the information available, the transparency and free entry for investors to participate, the overall odds are worth accepting.

As ever, investment timing is vitally important. Sterling, which took such a battering following the Brexit vote, is slowly recovering and is expected to rise in value against currencies like the Swiss Franc. In the meantime, the lower value of our currency is doing wonders for our exporters and the UK economy is now expected to grow. All things considered, and bearing in mind that low interest rates look like being part of the financial landscape for the foreseeable future, now would seem to be a very good time to invest in UK PLC – leave it too late and you could ‘miss the bus’.

swiss-flag

‘Bricks and Mortar’ Security

Author
Angus Dent
Date

The Great British love affair with property and the unwavering belief that, whatever else happens in the world, good old ‘bricks and mortar’ will always be there to save the day, evidently remains undiminished. The major banks have based a huge part of their entire existence on using real estate assets as security and judging by the recent crop of pre-Christmas authorisations granted to some P2P platforms– LandBay, Landlord Invest, Folk2Folk to name just three examples – that same underlying faith would seem to extend to the FCA.

As one of the many established platforms still waiting in the queue for the ‘green light’ from the FCA, it is galling to be watching from the sidelines. Sour grapes, possibly. But it does raise the legitimate argument about what should represent acceptable security for P2P loans – something that we know has been taxing the mind of the regulator.

My motive in raising the subject is not to ‘rubbish’ the intrinsic value of UK property as an asset, but rather to question its suitability for the task in every situation. Security is based on two fundamentals: you need an asset against which you can formally register an interest; and you need an asset that can readily be converted into cash at or close to valuation should the need arise.

A property – be it a house, a flat, office building or hotel – undoubtedly retains a value and ownership can indeed be registered. But the accuracy of the valuation is not so certain, especially in a forced sale situation or where development forms a significant part of the proposition. At the end of the day, a property is worth what someone else is prepared to pay for it. In house ownership, for example, I suspect we are all guilty of expecting to sell our own property at the top, but to buy someone else’s place at rock bottom. We are often wrong on both counts. And the longer a property takes to sell, the more detrimental it is likely to be to the valuation.

house-for-sale

Many ordinary people know what it feels like to be trapped in negative equity, especially if they are not party to the lucrative property game that operates in London or one of the other UK ‘sweet spots’. Reality is often far removed from mega deals that make the headlines and which are usually accessible to only a privileged few. Property assets with this potential are most unlikely to form part of the security used to back P2P loans.

It is a fallacy that all property lending is secure and suitable for retail.

On the other hand, assets such as sales invoices are designed to convert readily into cash; it is their sole purpose. You can’t live in them or run your business from them, but they can be registered at Companies House, they do have a face value and that value can be underpinned by credit insurance. Hopefully, one day this will be recognised by the regulator.

2017 Economic Outlook

Author
Angus Dent
Date

Uncertainty created by the ‘double whammy’ of surprise Brexit vote and the unexpected elevation of Donald Trump to the US Presidency has given way to some gloomy 2017 predictions from the UK’s senior business community. According to the most recent Boardroom Bellwether – conducted twice a year by ICSA, the Governance Institute, in conjunction with the Financial Times – three-quarters of the FTSE 350 company secretaries surveyed expected UK economic conditions to deteriorate during the next 12 months. More than half (54%) said that leaving the EU would have a damaging effect on their company. Only 9% were positive.

Interestingly, Peter Swabey, ICSA policy and research director, offered the comment that smaller listed companies were marginally more positive about the consequences of Brexit than their larger public peers.

And viewed through the eyes of many smaller companies, it would seem that the future doesn’t look quite so bleak after all. The Federation of Small Businesses’ (FSB’s) 2016 Q3 survey found that, despite uncertainty over Brexit, 55% of small businesses aspire to growth in 2017 – the highest ratio since the end of 2015. Other facts show that export performance is improving, spare capacity is declining and the share of smaller businesses expecting to downsize has fallen to under 11%. Crucially, the credit availability and affordability indices stood at their highest level since records began at the start of 2012.

What is also true, however, is that many SMEs have been holding back from borrowing. At the beginning of December, the British Bankers Association (BBA) reported that SMEs had made 31,596 loan applications during Q3 2016 – a drop of 13% over Q3 2015. It also revealed that cash held by SMEs, in either current or deposit accounts, stood at £170.4bn at the end of Q3, a rise of 5% over the equivalent 2015 figure.

Mike Conroy, the BBA’s MD for Business Finance, commented: “…..there is clearly lower demand for finance from businesses overall than in the same quarter a year ago. This subdued demand reflects reduced or postponed investment plans and continued deposit holding, particularly by smaller firms, as they operate within an uncertain trading environment.”

Companies, and probably most people, take comfort from certainty and it would take some leap of faith to predict that 2017 is going to be a bed of roses. However, the portents for next year are not all bad and, even though oil prices appear to be on the rise, UK interest rates seem to be anchored at historical all-time lows. If you take the view that adversity represents opportunity, and that investors large and small will still be hunting yield for the foreseeable future, brave SMEs will find there is no shortage of finance available at reasonable cost.

Happy New Year.

 

2017-numbers

“The P2P Sector Is Growing Up”

Author
Angus Dent
Date

There was always going to come a time when the Alternative Finance revolution would falter – maybe we have already reached that point. P2P lending and equity crowdfunding are no longer quite so new and, as the latest missive from the FCA makes clear, this particular side of the Altfi sector has outgrown the rule book. There are also early signs that the novelty is starting to wear off, certainly with the media. So, perhaps now is an ideal opportunity to take a step back and reflect.

Looking ahead into 2017, it is difficult to see how the benign conditions that have helped P2P platforms to create such a significant presence so rapidly – e.g. recovering economy, low interest rates, banks on the back foot – can continue indefinitely. Sooner or later interest rates will start to climb back up and there will be a downturn in the economic cycle. And, with so few platform operators making a profit, there are bound to be casualties.

Some platform backers may grow impatient with the expensive pursuit of acquiring market share at any cost and insist on seeing a return on their investment. Other platforms may simply ‘time out’ because their proposition is not sufficiently different or they have insufficient mass or financial backing to continue.

This could lead to business failures or, more likely, mergers/take-overs of platforms. Consolidation would be a perfectly normal phase for an emerging sector that has a myriad of players all vying for customers and profitability. The High Street banks, too, will recover their poise and may decide to dip their collective toe in the water by making a P2P acquisition or two of their own – if they do, they will almost certainly take aim at the biggest, the most established or those best placed to be scaled. All this is not so much to be pessimistic, rather it is to be realistic. Consolidation is inevitable.

The important thing is to make sure that P2P lenders do not suffer financially. If a platform fails, it does not follow that the loans in which the lenders are invested go bad. All P2P operators should have run-off plans in place to cover that eventuality – something that the FCA, quite rightly, insists upon. If private investors start to lose money, the press and other critics will have a field day.

What is also important is that the P2P sector does not allow itself to be divided into a number of component parts, either into the large and small platforms, or those with different business models. The sector should operate as one for its own protection and for the common good.

The P2P sector is growing up – it can either be in charge of that process or be at the mercy of others.

growth