While Amigo is only a minnow in the Alt lending scene it is in some ways a microcosm of what can go wrong during a Black Swan event such as a pandemic. In many ways it is almost textbook. For a starter this company will only lend to you because you are a poor risk in the first place. So it bases its credit assessment on the financial standing of a guarantor. But, as I have frequently mentioned, a guarantee is not security under the lenders control and is always subject to the possibility of challenge, misrepresentation, you name it. In fact it is a minefield which is why a guarantor might pay only a very slender margin for unsecured credit but Amigo charge an annualised rate of 49.9%. It is also a small loan provider, up to £ 10,000. This huge difference in credit pricing may well have been adequate before COVID now everything has changed. Small businesses have been hammered and this is its target market. Amigo’s share price has collapsed and is now around 3% of its IPO price just two years ago. The company are saying that they are now only lending to key workers and focusing on collections and complaints. I wonder if a pandemic was even considered when formulating the business model?
In case you haven’t heard ofAnne Boden, she is the driver behind Starling Bank, a UK digital outfit. She is 60 and a veteran of the banking business having worked at RBS, Lloyds and UBS amongst others. Her protégé some 25 years her junior a founder of promising tech start up GoCardless joined Starling in 2015 but left within six months taking a crew of Key Starling executives with him. Six months later he founded Monzo a very similar looking digital rival to Starling. Boden has written a memoir on the episode and extract from which was published in the Sunday Times. Not surprisingly nobody comes out of this particularly well. What it does tell us, I think, is that banking and technology are very different industries and have different personnel requirements. Some degree of friction is always inevitable although the Starling situation looks worse than normal. Banks as a matter of course need to take a balanced and cautious view on how to progress. It is hard to do this with a CEO who is apparently not blessed with the wisdom of self doubt. I don’t know who will come out of this best in the end but it looks like a no win situation to me. Will anyone learn any lessons? I doubt it.
The story so far. As part of the recovery from COVID, Infrastructure is going to be massively important. This is not just the UK but all over the western world so once again this is just a microcosm. Apparently this is because Transport for London the outfit that runs the show has essentially gone bankrupt because of COVID plus mismanagement and the Mayor of London who is in charge of this cluster has had to be bailed out by central government. Part of the terms of this settlement include the scrapping of Crossrail 2 an important, some would say essential, element of improving London’s massive mass transport problem. This was meant to follow on from Crossrail 1 the East West part of the plan which is now well over two years late, billions of pounds over budget and no end in sight. Both of these plans are desperately needed but the government don’t seem to be able to handle it. Instead we get HS2 a vanity white elephant reducing journey times from London to the North by 10 minutes or so which will make little difference but will cost us all dear. Is there any chance that we can learn how to finance and actually make infrastructure that works? I doubt it.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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