A lot to cover this month so let’s get started!
October usually has a surprise or two for the capital markets, and this month was no exception. Although equities have recovered from their September dip, credit spreads remain wide. ABS sponsors have hard choices to make—pay higher financing costs or defer/cancel deals.
Against this market backdrop, we note that marketplace lending platforms have evolved their financing programs in exceptionally benign credit conditions. Default rates and financing costs are as low as they have ever been. We view the past few weeks as bluster rather than storm. Nevertheless, the wider spreads and shelving of deals exposes the fragility of the financing chain linking platforms to the capital markets.
It’s often discussed that funding continued growth will require platforms to broaden and diversify their sources of financing. We’d like to add two ideas to the mix—the resiliency of funding during market stress and access to low-cost-capital.
Platforms that can fund through the cycle will slingshot past their rivals. Platforms that have access to low-cost capital will offer better rates to the consumer and greater net interest margins to investors. (See our US Treasury RFI response for more of our views.)
How to get there? We believe that groundwork consists of three pillars—data, analytics, and risk-transfer instruments.
We started development of our data analytics platform in anticipation of the growth of risk-transfer instruments such as securitizations. It’s gratifying to see the thesis—the transition of consumer and SME credit to the capital markets—take hold. And we are excited to work with the leading marketplace participants to lay the groundwork for continued growth.
We have covered market developments closely. In prior months, we released for public consumption the analysis of the seminal CCOLT deal and also a comparison of CCOLT and CHAI.
This month we are pleased to build on this and introduce:
- The inaugural PeerIQ Securitization Tracker. We believe that a definitive tracker—not only listing deals, volumes, stakeholders, but supplemented with insightful analysis—will help improve transparency, foster standards, shape aggregator-led securitization programs, and create greater awareness and liquidity in secondary ABS markets. In this issue, we go beyond a tally of securitizations and look into the relative performance of recent marketplace lending deals with consumer credit securitizations. We welcome any contributions not captured in our tracker.
- Second, we analyze the performance of the CCOLT deal under stress. We answer the question of what returns look like under various cumulative loss scenarios. (Hint: The answers are encouraging for ABS investors.) This research piece illustrates the value of our analytics capability in projecting the performance of the various tranches and is an important step in helping ABS investors understand and get comfortable with P2P risk.
- Finally, we released a consolidated side-by-side survey of the Treasury RFI on topics most relevant to capital markets investors.
We are excited to share these first-of-its-kind research pieces and at the same time demonstrate the importance of granular loan-level analytics to improve transparency, liquidity, and exchange of risk.
We have a lot of work ahead. We are grateful for your continued support and interest!
Lots of conferences this past month, including a successful exhibition of our cash flow analytics module at IMN Marketplace Lending Investors’ Conference on October 29th. Was great to see so many of you there and gather all the feedback on our live demo.
The event circuit continues with the following events this week and in coming weeks:
- Ram will be speaking at the Credit Suisse FinTech Conference (11/3-5) in San Francisco on Tuesday Nov 3rd.
- Kevin will be speaking at the American Banker Marketplace Lending Conference in NYC on Thursday, Nov. 5th.
- PeerIQ will be presenting a TED-style talk at the annual Wharton-Kellogg CIO Leaders in Alternative Investing Summit in NYC next Wednesday, Nov. 11th.
- Santander Consumer Plunges as CEO Shifts Plan on Personal Loans (Bloomberg, 10/29/15) Write-up of Santander’s decision to exit its Lending Club purchase agreement and current holdings. We, as many other analysts, view this as a one-off decision made by an incoming CEO, not evidence of an institutional trend. As Lending Club announced, SCUSA’s share was immediately replaced.
- Lending Club Reports Profitability and Exponential Loan Growth (Forbes, 10/30/15) Strong 3Q results for Lending Club which reported breaking even for the first time as a public company and raised its sales and margin forecasts for the full year.
- No Longer a Niche, Consumer-Direct Lenders Lead Mortgage Innovation (National Mortgage News, 10/26/15) Deep dive into how the digital channel is transforming the mortgage business.
- Treasury Official Discusses Marketplace Lending Industry at NYC Event (Crowdfund Insider, 10/29/15) Highlights and the full speech of Antonio Weiss at last week’s IMN Conference, with UST’s view on their recent RFI.
- U.S. Banks to Face $120 Billion Shortfall in Fed Crisis Plan (Bloomberg 10/30/15) New total loss absorption rule proposed by the Fed, which applies to eight of the biggest U.S. banks, requires debt and a capital cushion equal to at least 16 percent of risk-weighted assets by 2019 and 18 percent by 2022.
- Bank Regulators Approve Joint Final Rule on Uncleared Swap Margin Requirements (Chapman & Cutler LLP, Client Alert, 11/2/15) Primer on the final rule, effective April 1, 2016, and its implications.