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

Ashen

Aceace said:

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. 

This is true, and I know you're just answering the question, but important to state that forecast includes earning full interest - the result of existing investors being made to give up half interest. Investors over the last year have had the risk while earning lower returns. Now the loan book has returned to an expected favourable position, thanks to investors receiving half interest, it's being taken away from those investors. It does sting a bit.

Aceace

Ashen said:

Aceace said:

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. 

This is true, and I know you're just answering the question, but important to state that forecast includes earning full interest - the result of existing investors being made to give up half interest. Investors over the last year have had the risk while earning lower returns. Now the loan book has returned to an expected favourable position, thanks to investors receiving half interest, it's being taken away from those investors. It does sting a bit.

Yes, that's a fair point @Ashen.
IMO there just wasn't enough profit in RS's business model to feed both lenders and the platform. As has been evidenced for a long time now in the fact that the ICR was constantly reducing and constantly missing its intended targets. Now that lender funds will be provided by MB, who will access these funds at a much lower rate, they might be able to make a success of it. I was very concerned that RS had under estimated the effect that the imminent ending of government support through Covid will have on its borrowers, so I'm very happy to escape with my remaining funds intact. 

IvanOpinion

I guess there will be plenty of bubbly at this years Metro Xmas do and bigger bonuses all round - courtesy of RateSetter lenders being forced to take a cut in returns.

firestone

Or bubbly for a lot of investors who in the summer thought they may either wait years for there money or take a cut in capital (and i speak as someone who invested for a few years and still have some funds there)
At the end of the day while not ideal it might be worth looking at it as a win for both parties.As a company RS over the years predicated big things for their company but in the end they were bought for a couple of million with a promise of a couple more Million if targets are hit in the future.
While it would be nice to get a cut of the PF it was RS that bought the rate cut in and i would guess without restoring the PF either Metro would not have bought or RS would have crashed and a whole new thread of posts would have started with people having lost money.
There were also a few odd posts over the last year (and before) ranging from scam or ponzi scheme which they were not but at the end of the day help was needed to protect investors

geoff_ss

Last year, Ratesetter decided it would  loan my money to new people, while paying me half the interest that Ratesetter collected on my behalf. Now that the risk of those loans has been fully covered by my confiscated interest, it won't let me be benefit for the rest of the loan terms. Instead, they've choose to force me to sell my loans to themselves.

p2ps should never have a right to decide to confiscate its customers' loan book & sell it to itself (or sell it to any other bank). If a p2p is failing, it should be forced to let an independant liquidator run their customers loan book down, or auction it to a competing bank at a transparent market rate. The cost of the liquidation should come from the failed p2p's assets, not its customers.

Thrugelmir

geoff_ss said:

 it should be forced to let an independant liquidator run their customers loan book down, 

The hourly rates charged by liquidators would soon erase any benefit and more to individual loan holders. 

firestone

geoff_ss said:

Last year, Ratesetter decided it would  loan my money to new people, while paying me half the interest that Ratesetter collected on my behalf. Now that the risk of those loans has been fully covered by my confiscated interest, it won't let me be benefit for the rest of the loan terms. Instead, they've choose to force me to sell my loans to themselves.

p2ps should never have a right to decide to confiscate its customers' loan book & sell it to itself (or sell it to any other bank). If a p2p is failing, it should be forced to let an independant liquidator run their customers loan book down, or auction it to a competing bank at a transparent market rate. The cost of the liquidation should come from the failed p2p's assets, not its customers.

I was happy to leave some but not all of my money in RS since last year and thought the buyout by Metro a positive if only to see how they progressed.But it soon became clear that Metro had only bought the name & infrastructure to start doing their own loans and would leave the RS p2p side in runoff and no cover.With only a few already promised property loans as new loans with the rest of the money being recycled between people staying invested and those leaving,it would have closed at some time but with the people who were left at the end holding the bag
While i would be the first to believe that Metro had plans for the RS loan book at the start there was also the risk that the p2p side would leave some investors holding all the risk at the end as the capital reduced.But it would seem Metro's sale of its mortgage side to other banks over the last few weeks gives them the capital to payoff (which could have been the plan all along)
The threads on the p2p indie forum for other platforms suggest liquidators are not seen as the answer and with a "soft touch" handling by the FCA this seems to have been the better answer and it was also the way Landbay withdrew from the p2p market by buying out the private investors so it had been done before.
It could happen that if the PF does not cover the loan book or Metro get their sums wrong that there could be another thread from unhappy Metro shareholders in a couple of years

ShrewdLewdDude

I consider that the loan contracts are between myself (as lender) and the borrowers. I have lent my money to individuals (peers) and Ratesetter have acted as agent/broker. They have taken their cut as fees/commission etc whatever you want to call it but they have been paid to do this. I question the legality of what they are now doing which seems to be tearing up the contracts I have with my borrowers and reselling them to Metro. I know loan companies can sell THEIR portfolios but don't see how Ratesetter can sell MINE? I don't know how this can be either ethical or legal?

ZeroSum

ShrewdLewdDude said:

I consider that the loan contracts are between myself (as lender) and the borrowers. I have lent my money to individuals (peers) and Ratesetter have acted as agent/broker. They have taken their cut as fees/commission etc whatever you want to call it but they have been paid to do this. I question the legality of what they are now doing which seems to be tearing up the contracts I have with my borrowers and reselling them to Metro. I know loan companies can sell THEIR portfolios but don't see how Ratesetter can sell MINE? I don't know how this can be either ethical or legal?

That's how zopa works. Ratesetter is different as they're safeguarding your capital via the provision fund. So if borrower doesnt pay, you still get your money back. Under a 1 to 1 relationship youd be taking hits due to defaults

N1AK

ShrewdLewdDude said:

I consider that the loan contracts are between myself (as lender) and the borrowers. I have lent my money to individuals (peers) and Ratesetter have acted as agent/broker.

So you somehow stopped RateSetter from compensating you for any losses on your loans as they were just the broker...

You can consider anything to be anything if that is your inclination, but it's incredibly clear that an investment in RateSetter doesn't work remotely like that.