Sale of Ratesetter portfolio and loss of Provision Fund at the expense of investors

DaveHHHH

Investors in Ratesetter have had their interest income halved for the last year to maintain the Provision Fund.
Now that the loan portfolio has been sold to their parent company, Metro Bank, investors are going to be repaid their capital whether they like it or not. It now appears that the whole of the money in the Provision Fund is also going to Metro Bank as a part of the deal, with no additional consideration being paid to the investors that built it up.
You would think that having halved the investors' interest income to put into and increase the balance of the Provision Fund for the last year, the Provision Fund would have been returned, at least in part, to the long suffering investors.
Make no mistake, Metro Bank will have had a strategy when acquiring Ratesetter, and taking the cash from the Provision Fund will always have been a part of that strategy. In valuing the deal to buy Ratesetter this will have been in the equation. The long and short of it is that the investors loss of income over the last year has either gone in to the pockets of the sellers of Ratesetter back in September 2020, or into the pockets of Metrobank recently.
Am I the only person that think that this sounds immoral?

moneysavinghero

In the sense that Metrobank will now hold the loans and may suffer loses on those loans, it would be moral that they have the benefit of the provision fund.

But in the sense they have seemingly deliberately cut the interest rate to build the provision fund up before announcing this, then that part of it seems a little immoral to me.

firestone

while i would not mind part of the PF back it should be noted that the interest rate money to the PF was in force  before Metro took over (but it may have helped sweeten the deal)

Aceace

DaveHHHH said:

Investors in Ratesetter have had their interest income halved for the last year to maintain the Provision Fund.
Now that the loan portfolio has been sold to their parent company, Metro Bank, investors are going to be repaid their capital whether they like it or not. It now appears that the whole of the money in the Provision Fund is also going to Metro Bank as a part of the deal, with no additional consideration being paid to the investors that built it up.
You would think that having halved the investors' interest income to put into and increase the balance of the Provision Fund for the last year, the Provision Fund would have been returned, at least in part, to the long suffering investors.
Make no mistake, Metro Bank will have had a strategy when acquiring Ratesetter, and taking the cash from the Provision Fund will always have been a part of that strategy. In valuing the deal to buy Ratesetter this will have been in the equation. The long and short of it is that the investors loss of income over the last year has either gone in to the pockets of the sellers of Ratesetter back in September 2020, or into the pockets of Metrobank recently.
Am I the only person that think that this sounds immoral?

The provision fund is forecast to be mostly used up to compensate for lost capital and interest on the existing loans. Lenders are being replayed their capital in full and all interest up to April. So, there is unlikely to be much spare cash for Metro to inherit. If the forecasts are wrong they may even inherit a loss. 

Thrugelmir

If the provision fund was fully distributed. Then the loan book would only have been worth so many pence in the pound. A cake can only be cut so many ways. This seems the equitable way of closing matters down. The alternatives would have been time consuming and costly resulting in less money being returned. 

Anilao

I share the feeling of unfairness about the interest rate cut to keep a healthy balance in the provision fund and then that income not being returned to investors.  If it is the case that the loans are being defaulted on to such an extent that the provision fund has or will be used up to repay all investors then fair enough. But Is that really what’s happening here? It feels like my income is being diverted into someone else’s pocket.  I am however grateful that my money will be returned. 

Aceace

Anilao said:

I share the feeling of unfairness about the interest rate cut to keep a healthy balance in the provision fund and then that income not being returned to investors.  If it is the case that the loans are being defaulted on to such an extent that the provision fund has or will be used up to repay all investors then fair enough. But Is that really what’s happening here? It feels like my income is being diverted into someone else’s pocket.  I am however grateful that my money will be returned. 

The Interest Coverage Ratio (ICR) currently stands at 101%. This forecasts that the current funds in the PF plus all future PF income will be just enough to balance the expected defaults. Whether the PF will eventually end up in profit or deficit depends on the accuracy of these forecasts. 

masonic

Anilao said:

I am however grateful that my money will be returned. 

Return of investment > Return on investment

MSE_Helen_K

Thanks for the thread discussing this topic. We've now published a news story on this move from Ratesetter/Metro Bank. 

Read the full story:
'Ratesetter to sell its loan book to Metro Bank - what it means for investors and borrowers'

Click reply below to discuss. If you haven’t already, join the forum to reply.

block10

It does seem immoral given ratesetter suspended withdrawals and halfed interest payments. Metro ought to have bought the loans immediately after buying RS, which would have prevented this pain.

It seems Metro delayed buying the loan portfolio just to sweeten the deal for itself.

Thrugelmir

block10 said:

It seems Metro delayed buying the loan portfolio just to sweeten the deal for itself.

Takes time to assess the true state of the loan books. Took the UK Treasury team 8 months to get to the bottom of Northern Rocks mortgage books before deciding that Nationalisation was the only answer.