Risky business debt being sold to individuals

Reaper · 9 October 2018 at 3:38PM

Apparently the Bank of England is worried risky debts are being packaged up and sold a bit like the previous sub-prime loans crisis.
https://www.bbc.co.uk/news/business-45797963

This time though its not banks buying individuals mortgage debt, it's individuals buying packaged up business debt too risky for the banks to touch.

My question is who are the individuals buying this? If I went onto the stock market today wanting to buy this (I don't!) where would I find such a package?

EDIT: Could it be "leveraged loan" ETFs?

Linton · 9 October 2018 at 4:36PM

Reaper wrote: »

Apparently the Bank of England is worried risky debts are being packaged up and sold a bit like the previous sub-prime loans crisis.
https://www.bbc.co.uk/news/business-45797963

This time though its not banks buying individuals mortgage debt, it's individuals buying packaged up business debt too risky for the banks to touch.

My question is who are the individuals buying this? If I went onto the stock market today wanting to buy this (I don't!) where would I find such a package?

EDIT: Could it be "leveraged loan" ETFs?

I suppose you could regard high risk Corporate Bond funds as meeting your criteria. Though they do not attempt to hide what they invest in and are regulated.Then at the more dubious end of the market there are the people offering 8% “guaranteed” to naive investors who believe they are putting money into something like a bank fixed term account.. Perhaps you could roll your own with P2P.

short_butt_sweet · 9 October 2018 at 4:37PM

i doubt much of this is on the stock market. presumably the investment banks are selling this directly to their victims - sorry, i mean: to their clients. similarly to sub-prime mortgages.

some p2p lending falls in the same category. but that seems to have a much smaller volume of lending.

Thrugelmir · 9 October 2018 at 5:04PM

P2p......... and related activities.

verybigchris · 9 October 2018 at 7:44PM

There are loans on Assetz Capital where investors funds have been sought to buy defaulted debts at a discount from high street banks, in the hope of being able to recover more than was paid. I hated the business model so didn't invest (and I'm out of AC now anyway) but just checking back now it looks like they haven't fared well.

The bit I really couldn't get my head round was the way they treated the iffy loans as security for investors. So people were investing, thinking that if it failed they'd at least have £Xm in assets to repay investors. But if it fails, by definition it's because those assets have no realisable value, so you're not getting anything back. Bonkers.

antrobus · 9 October 2018 at 8:20PM

Reaper wrote: »

Apparently the Bank of England is worried risky debts are being packaged up and sold a bit like the previous sub-prime loans crisis.
https://www.bbc.co.uk/news/business-45797963

This time though its not banks buying individuals mortgage debt, it's individuals buying packaged up business debt too risky for the banks to touch.

My question is who are the individuals buying this? If I went onto the stock market today wanting to buy this (I don't!) where would I find such a package?

EDIT: Could it be "leveraged loan" ETFs?

You have misread the report.

These leveraged loans are being sold to 'non-bank investors'. There is no mention of 'individuals' as such.

The likes of you and I probably lack the wherewithal to buy collateralised loan obligations.

https://www.bankofengland.co.uk/-/media/boe/files/statement/fpc/2018/financial-policy-committee-statement-october-2018.pdf?la=en&hash=A10878A3FF65433E1296FD552C4406C9D28ACAC2

Thrugelmir · 9 October 2018 at 8:50PM

antrobus wrote: »

These leveraged loans are being sold to 'non-bank investors'. There is no mention of 'individuals' as such.

Easy enough to invest in the chase for yield (income). Here's one with a £700 million balance sheet.

P2P Global Investments PLC is a UK listed investment
trust. The Company is focused on producing less volatile
returns, investing in small ticket lending opportunities with
attractive risk and reward characteristics.
The Company specialises in investing in small size
private credit assets across SME, consumer (secured
and unsecured), real estate and trade finance asset
classes through strategic partnerships which encompass
marketplace lending platforms, balance sheet lenders
and other non-bank loan originators. The Company
invests in the USA, Europe and Australasia and actively
seeks opportunities in other markets.

A growing opportunity exists for non-bank capital to earn
attractive returns from lending across a broad origination
universe, largely as a result of increased regulatory
requirements imposed on banks. The banks’ subsequent
retreat from some traditional lending markets has
facilitated new entrants into the financial landscape. In
addition to these regulatory changes, data and
technology advances have opened the small sized
lending markets, previously monopolised by banks, to
competition from new alternative entrants. These
entrants have previously offered lower distribution costs
and attractive customer propositions, and additionally
now many offer increased specialisation, focused
expertise and greater risk sharing by putting their own
balance sheet capital at risk. Today’s new generation of
lenders have evolved to take advantage of structural
changes. The Investment Manager is privileged to
partner closely with the highest quality originators in order
to access exciting investment opportunities in small size
private credit assets.

Reaper · 10 October 2018 at 7:56AM

antrobus wrote: »

You have misread the report.

These leveraged loans are being sold to 'non-bank investors'. There is no mention of 'individuals' as such.

The likes of you and I probably lack the wherewithal to buy collateralised loan obligations.

Ah thanks, I had indeed mis-read it.

I think it is likely leveraged loan ETF are at least one of the vehicles so are also available to us. Here is an article from the FT from back in May
Please don't tell individual investors to buy leveraged loans

In the US, these loans are usually made to companies lower on the credit-quality scale, and the entire market is opaque, non-public and illiquid, with idiosyncratic contract terms. The analysts said the fund managers who sell these securities in open-ended mutual funds and ETFs could be putting their reputations at risk.

Sadly, it does not look like anyone listened.

Last week, investors sent nearly $1bn into loan funds, the most in more than a year. The majority of this came from institutions, according to EPFR, but individuals were responsible for almost $200m of inflows.

Albermarle · 10 October 2018 at 8:57AM

With some of the retail P2P sites , if a loan does not fill from the individual lenders , then 'underwriters' step in to make sure the loan can go ahead . Also generally P2P sites that promote themselves as primarily retail/small lender focused also seem to have some more corporate /HNW money being lent behind the scenes .

DiggerUK · 10 October 2018 at 9:33AM

Reaper wrote:

....... it's individuals buying packaged up business debt too risky for the banks to touch......... who are the individuals buying this.........where would I find such a package.....

I can only add my warning about the shower of sharks who promote P2P. They are the outfits who are up to their eyes in this stuff. It is a rerun of the financial crash Collateralised Debts.

The government will put out an occasional 'oh my gosh, isn't it awful darling' type warnings to cover their 8ackside, but it works to their advantage..........and they won't have to bail out the P2P bandits when it goes sits up..._

stuffforsell09 · 4 February 2019 at 10:48AM

Totally agree. Loan states it has 2 Million pound security where in fact it's worthless. Major chance of losing your full investment, like I have done. Over £6,000 pound so far lost and fighting to get back other investments in AC via the Financial watchdog. Avoid at all costs.

Risky business debt being sold to individuals

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