Alt Lending: Asset Values Heading South

https://dailyfintech.com/2020/07/03/asset-values-heading-south/
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Alt Lending Image.001On Friday 27th June the retail property site Intu went into administration  and Doorstep lender NSF issued a warning that it would need an injection of funds from its shareholders to continue as a  going concern. On Saturday 28th.  Sunny Loans one of the biggest payday lenders in the UK said it was on the brink of administration. Not bad for one weekend. At the same time the ex governor of the Bank of England was giving his, slightly disturbing, longer term view about the state of Western economies. All of these stories have at least one common thread running between them which is the rapid deterioration of asset values and credit risk right across the board. Under the circumstances I decided to focus this week’s stories on the deteriorating financial situation.

Here is our pick of the 3 most important Alt Lending news stories during the week:

1. Covid debt timebomb could trigger new financial crisis, warns Mervyn King

“The world is facing a coronavirus debt timebomb as countries borrow trillions of pounds to fight the pandemic, former Bank of England Governor Mervyn King has warned.”

Why this matters : –  This was economist Liam Halligan interviewing ex Bank of England CEO Mervyn King. As this weeks stories are all about the rapid decline in asset quality Mr. King’s views really ought to be listened to.  While he concentrates on the integrity of the banking sector he sees the risk of multiple defaults by big business and even sovereign borrowers as a real risk. What goes for the banking sector is even more pertinent to the Alt lending field. While he takes the view that the UK and the US banking sectors are currently reasonably robust he has serious concerns about the Eurozone which is now “utterly dependent on the ECB” . He also thinks that there is no democratic support for fiscal union across Europe. Hence the strength of the glue holding the Euro together is going to be tested. If the Euro broke up of course then we would definitely be in uncharted waters and all bets would be off. As far as Fintech lending platforms are concerned  these are interesting times. Most of the lenders have appeared since the funding crises following the US subprime problems. They have therefore not experienced the full cycle. They are about to find out that getting money back is a lot more difficult than dolling it out.

2. Shopping centre giant Intu on brink of administration

“The owner of some of the UK’s biggest shopping centres, Intu, has warned that it is likely to call in administrators.

The firm, which owns the Trafford Centre, the Lakeside complex, and Braehead, said it had not reached an agreement in financial restructuring talks with its lenders.”

Why this matters:  Intu is a great example of how problems in the retail sector are manifesting themselves in the financial arena. Intu owns some 17 major retailing hubs around the UK including Lakeside in Essex and the Trafford Centre in Manchester.   Traditional retail was already suffering largely from the impact of online sales and then along came COVID 19 and the shutdown. Analysts think that rentals received by Intu from its clients have received just 18% of rentals from its tenants from the last quarter.  Discussions with creditors broke down over a principal repayment holiday Intu built its portfolio largely on debt and there are some £ 4.7 million worth of listed bonds outstanding will continue to operate independently. Some of the stronger performers in the portfolio will be sold but government rules on evictions in the pandemic will leave any purchaser with little wriggle room going forward. Moody’s cited the fact that COVID 19 had altered the whole of the European Retail sector and made it far more challenging. This is not just affecting the giants of the business like Intu but will filter down to any property company with retail assets. A new price discovery cycle is going to begin and some lenders and investors look likely to get their fingers burned.

3. Covid pressure pushes Sunny Loans to brink of administration

One of the UK’s biggest payday lenders is on the brink of administration as a regulatory clampdown continues to shake up the sector.

Elevate Credit International – which trades as Sunny Loans – filed notice of intent to appoint administrators last week.

Why this matters: Low level financial service providers are once more caught in the crosshairs of COVID 19 and punitive regulation. Sunny Loans, the business name of Texas based company Elevate Credit international is one of the UK’s biggest payday lenders controlling one fifth of the market. The loans are small and made to individuals to tide them over until payday comes. This is a big market and two of its competitors have recently failed.  Unsurprisingly a whole lot of people who do not work for the government or who are not entitled for one reason or another to government assistance are feeling the pinch and do not have the money to make repayments. Nevertheless these companies do provide a valuable service to a deprived sector of the population. The alternatives are loan sharks and that is a really unacceptable face of capitalism.

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Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. 

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https://dailyfintech.com/2020/07/03/asset-values-heading-south/