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London Capital and Finance

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  • Malthusian
    Malthusian Posts: 11,055 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    masonic wrote: »
    It would be the same story for any legitimate black box P2P lending platform with fixed term investment products that do not match the duration of the underlying loans written using the funds.

    A scheme where there is a mismatch between the duration of its underlying loans and the duration of its borrowings may be legitimate but it is massively incompetent and if it collapses it's not the FCA's fault.

    You don't borrow money for three years and then lend it out for five years with no better plan than to say to your investors in three years time "oh hai, you know that money you loaned me for three years, well I loaned it out for five years, so I guess you'd better roll over your loan and preferably invest another load of money or you can kiss the lot goodbye". This is corporate finance 101, it isn't rocket science.
    Let's hope LC&F have enough capital reserves to repay maturing bonds and can manage their loan book to avoid becoming insolvent themselves.
    According to their last accounts, which are now a year and eight months old (thanks to London Capital & Finance using the accounting-period-shortening trick to get out of having to file 2018 accounts on time), LC&F had total assets of £50.6 million and liabilities of £50.2 million as at April 2017.

    However, note that its total bonds in issuance amounts to £60.8 million at par value at that date. The difference is because £11.3 million was paid out in commission and other issue costs. Issue costs are charged to the profit and loss account rather than the balance sheet. But it still all needs to be repaid. At some point.

    What reserves?
  • Malthusian wrote: »
    A scheme where there is a mismatch between the duration of its underlying loans and the duration of its borrowings
    that sounds like a bank.
    may be legitimate but it is massively incompetent
    still sounds like a bank.
    and if it collapses it's not the FCA's fault.
    but it might be the PRA's fault.

    (totally irrelevant to this thread. sorry.)
  • bail-in
    bail-in Posts: 169 Forumite
    Third Anniversary 100 Posts
    edited 28 December 2018 at 7:06PM
    Well, we shall have to wait for the FCA news results re the investigation into the affairs of LCF. There are always winners and losers whether companies succeed or fail. All companies who do not rely on their own capital will need to continually raise capital from outside sources to survive and progress.

    Regarding the current claimed LCF loans to businesses, since the first bond issue there has been no corporate loan disclosure nor evidence of a loan book nor sme corporate borrowers, nor a single case study to prove the commercial lending business exists. Not from want of asking. Simply no cooperation on the part of LCF, in spite of requests, visits and meetings with directors and staff, and so on, to satisfy requests by investors, partners and other interested parties to substantiate the existence of the commercial lending business. Plenty of evidence to prove the bond investment business, the primary business of LCF, but not the commercial lending.

    For the truth of the matter, we will have to wait and see. However, recent hindsight shows the usual story behind the failure of mini-bonds is that the investment funds were not used for the intended purpose stated by the issuer in the bond memorandum or prospectus. The very structure of a mini-bond with its minimal legal disclosures allows for wrongdoings in relation to investor capital. Depending on who is behind the bond issue, that can be a major determination of whether it is successful or unsuccessful. With a mini-bond it is often the issuer alone, a sole owner of the company, who has hands on management of the bondholder capital, not the security trustee nor the bondholders, accountants, solicitors, staff, directors.
  • Malthusian
    Malthusian Posts: 11,055 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    that sounds like a bank.

    Haha except it doesn't, because banks are subject to stringent capital adequacy requirements under Basel II and III aimed at minimising the risk that Miss Miggins can't withdraw her savings and ends up queueing round the block because the bank has tied it all up in longer term loans (and can't borrow against them on the interbank markets). Which is why bank runs occur about once in an economic cycle and usually result in no losses to depositors.

    Whereas London Capital and Finance is unregulated and can do what it likes. Which is why small unregulated firms go bust all the time, usually with total or near total losses.

    Oops. What I meant to say was: lolololol banks
  • Sledger
    Sledger Posts: 189 Forumite
    Eighth Anniversary 100 Posts Name Dropper
    am I missing something here Bail in. If and a big if is whether LCF business model of matching Bonds paying up to 8% and loaning it out at say on average 12% would generate quite a lot of cash flow to cover LCF overhead on the 60 Million + estimated since the April 2017 filed accounts. If and another If there are no defaults as LCF claim, could it not just tick over without the need to continually raise fresh capital as LCF were hoping. 3 years ago LCF had considerably less Bonds and the interest margin would barely cover overheads. Not sure what capital they currently have as Malthusain posted or what there projected future forecast was but this FCA has put the brake on generating more Bond money. So wishful thinking on LCF claim that they have no defaulters (is not due to LCF having no loans hence no defaulters) and the bond money is all loaned out against secured 100% plus loans, the loan interest and capital should be paid back to LCF and subsequently the Bond Holder. The loan term is now the question of the bond payback period which will be the disruptive element. Am I being to optimistic
  • Sledger
    Sledger Posts: 189 Forumite
    Eighth Anniversary 100 Posts Name Dropper
    Hi Bail In
    I just tried to sent you a private message but your settings wont allow. Can you sent me one please as need urgent guidance on LCF regarding your research
  • masonic
    masonic Posts: 27,223 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    There is a whole spectrum of possible outcomes depending on what actually went on under the surface and what happens next in the FCA action. This includes hapless investors being reunited with their capital at some point in the future. Right now there is nothing that can be done to influence this outcome.
  • bail-in
    bail-in Posts: 169 Forumite
    Third Anniversary 100 Posts
    edited 30 December 2018 at 7:53AM
    Hi Sledger, I am not qualified to give financial and investment advice. You can read the London Capital and Finance Mini-bond Review earlier on in this daniel80 thread, but I doubt there will be much of help at this stage of current affairs.

    As for findings, I could see that in order to have an 8% pa. interest for bondholders LC&F would have to have at least 12% pa. and more on the business loans to cover expenses, profits and capital interest payments. However, a corporate borrower of good credit standing could borrow at less than that, around 5% for a short term business loan for £500,000 from a High Street bank, such as Santander. So LC&F stated commercial loan interest of 12-20% is not really competitive and may indicate greater borrower risk. You could ask the illusive lending team about that. Good luck with that!

    None of LCF periodic website notices re growing numbers of corporate borrowers and loan amounts have been supported by evidence from their side with stats on neither LCF website. In fact current statistics point to the opposite. No LCF loan failures since 2012? The SBA stats indicate 16% of smes fail within the first year and 50% within 5 years. Banks say 34% of sme borrowers are in receipt of forbearance in one form or another.

    My interest with LCF and other similar mini-bonds has not been analysing their commercial lending or other business model, rather does it actually exist. It may very well do so but LCF officers like and unlike many other commercial lenders will not provide any evidence, stats, corporate borrower names, track record, case studies.

    Financial failure history of audited company annual accounts in hindsight show even large companies can and have hidden the true picture of company affairs. Financial pictures can quickly change. Some businesses can be physically seen to exist others cannot. Liquidation of failed companies can reveal entirely different business models from those industry standard classifications claimed at Companies House registration.

    The list of industry standard business classifications codes on initial registration at Companies House is exhaustively specific. Corporate activity industry registration standards entries are not checked for accuracy, so the industry classification list may have little description value in practice. Commercial lending industry standard classification codes are a lot different and more specific and appropriate than the LCF choice on registration selection of the code: other business activities not yet classified.

    Nothing wrong with a company changing its business model in its commercial life, although a bond issuer should be doing the business activity stated in the legally drawn up bond memorandum or prospectus to raise the bondholder interest. After all LCF is a startup, without any track record of success in commercial lending and may not be able to provide such, although the CEO's CV indicates he has had employment experience in commercial lending in the UK banking industry.

    Prevention is better than cure; a common theme in this and other London Capital and Finance threads. There is a Welsh saying similar to the meaning of the English saying about the stable door, bolt and horse: "It is too late to lift your petticoat once you have piddled"!
  • dont_use_vistaprint
    dont_use_vistaprint Posts: 784 Forumite
    Part of the Furniture 500 Posts Photogenic Name Dropper
    edited 30 December 2018 at 1:02AM
    bail-in wrote: »
    Hi Sledger, I am not qualified to give financial and investment advice. You can read the London Capital and Finance Mini-bond Review earlier on in this daniel80 thread, but I doubt there will be much of help at this stage of current affairs.

    As for findings, I could see that in order to have an 8% pa. interest for bondholders LC&F would have to have at least 12% pa. and more on the business loans to cover expenses, profits and capital interest payments. However, a corporate borrower of good credit standing could borrow at less than that, around 5% for a short term business loan for £500,000 from a High Street bank, such as Santander. So LC&F stated commercial loan interest of 12-20% is not really competitive and may indicate greater borrower risk. You could ask the illusive lending team about that. Good luck!

    None of LCF periodic website notices re growing numbers of corporate borrowers and loan amounts have been supported by evidence from their side with stats on neither LCF website. In fact current statistics point to the opposite. No LCF loan failures since 2012? The SBA stats indicate 16% of smes fail within the first year and 50% within 5 years. Banks say 34% of sme borrowers are in receipt of forbearance in one form or another.

    My interest with LCF and other similar mini-bonds has not been analysing their commercial lending or other business model, rather does it actually exist. It may very well do so but LCF officers like and unlike many other commercial lenders will not provide any evidence, stats, corporate borrower names, track record, case studies. Some businesses can be physically seen to exist others cannot. Liquidation of failed companies have shown entirely different business models from those activities claimed at Companies House registration. Nothing wrong with a company changing its business model, although a bond issuer should be doing the business activity stated in the bond Memorandum or Prospectus. After all LCF is a startup, without any track record of success in commercial lending and may not be able to provide such, although the CEO has had work experience in commercial lending in the banking industry.

    Prevention is better than cure; a common theme in this and other London Capital and Finance threads. There is a Welsh saying similar to the meaning of the English saying about the stable door, bolt and horse: "It is too late to lift your petticoat once you have piddled"!

    The info your are after is all public, just buy the reports from companies house. If you speak to them nicely they send you copies for free. Are you SME stats relevant when LCF primarily loan to mid sized companies not SME's ?
    The greatest prediction of your future is your daily actions.
  • Twopints
    Twopints Posts: 1,776 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    So you do not think there is anything slightly worrying about the fact that they repeatedly change their year end by one day to avoid publishing annual accounts and that they are being investigated by the FCA? That information is also public.
    Not even wrong
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