Is Saving Stream really safe?

economic

Hi

im putting this post on this part of the forum as its more of a debate.

I went through the details of SS in terms of accounting and company risks. I think the general consensus between people on this forum and elsewhere is that its relatively safe platform although of course there is borrower risk (which can be mitigated by diversifying). I find it worrying some posters are willing to put a significant part (some a few 100k!) into it.

If you look at the balance sheet ending 2015, they have about £1m in cash. They also have total assets of £66.5m (the loans to the borrowers) and total liabilities of £66m (the money investors put in).

this means they are effectively running at a leverage of 66x. (I know this is a year old but i wouldnt have expected the there to be a material change in terms of leverage). Very huge in my opinion and its no wonder (or perhaps the result of) they are not regulated by the PRA.

what this actually means is that the risk of the platform going bust would turn out to be a huge problem. with £1m in capital, IF the platform goes bust then whos going to take over the running of it? administers wont do it for free. they will need to sell the assets (wind-down) which means on the creditors (those who invested) would have to take a significant haircut. remember this is a small number of illiquid loans that would be sold all at once and any buyer would require a significant haircut on the assets. and remmeber the investors dont directly loan to the borrowers. its done via SS so there is no true risk pass-through (this is key). The proceeds from the assets would then be paid to the investors (who would take the haircut).

Now you may ask why would they go bust? well there are many reasons but its all because of tiny amount of capital they have: fraud, costs rising a lot, hacking of systems, fire in offices, new regulations they need to adhere to, and potentially many others i dont know about.

(you may also think another P2P company would take over the running, but why would they? if the current management couldnt have it running, why would someone else continue to run it, at least without a significant haircut?). its the £1m of capital vs the balance sheet that should really worry people.

These are real risks. investing in SS is like investing in a VERY risky startup wit next to no capital and high leverage. there are some real risks with having money with them that i think are overlooked and this is very dangerous. it is for this reason i would not recommend anyone having a significant amount invested with them. and for a 12% return before tax i just dont see its even worth the hassle having anything with them. i am going to take my money out of the platform. i just dont see the point.

what does everyone else think?

Thrugelmir

If you want a 12% return then you need to accept the risks. Loan will default. So over an extended period your actual return may be lower than the headline figure. The Directors are making their money using the investors. A neat business model.