Alt lending week ending 1st October 2021

 

China bans all cryptocurrency transactions

This story caught my eye as it touches on the vexed issue of what is real and what isn’t. Frankly I have never understood the attraction of any crypto currency for the very simple reason that nobody can tell me how much it is worth? As an old fashioned banker I understand realities not ethereal conjecture but I have noticed a trend to conflate certainties with uncertainties and in this case China is saying something quite plainly Chinese citizens can’t trade in this stuff. A lot of my colleagues in the finance business take all crypto currency at face value and why not if you are making money from it. Most of these guys have a vested interest to defend and bang on about the benefits, pick your own currency, don’t trust governments. But ask yourself the question. What would you do if Bitcoin value fell to nothing and you were relying on it? After all the only real value is what someone is prepared to pay for it. Admittedly this is same for any asset but most assets are real, verifiable and can be valued. South Sea Bubbles anybody?

 

Tough times for Energy suppliers.

The rapid rise in wholesale energy prices has left many of the Uk’s smaller suppliers up the creek without a paddle and dozens of companies face insolvency. Scandals have already started emerging such as large sometimes unwarranted payments to directors lack of proper supply  hedging strategies etc? It looks very much like a bloodbath. Seems like the regulatory regime didn’t work very well. Quelle surprise?  Undoubtedly it will not just be equity which is being lost but some banks will have had their fingers badly burned. It will be interesting to see how well the credit strategists within the banks performed. Did they do their due diligence properly? Did they notice the exposures that were racking up. As an old cynic I very much doubt it but whenever I dip my toes into credit markets I see bad mistakes being made by a lack of proper training in back to basics credit fundamentals. Understanding the business risks in volatile markets is a skill that has to be learned at the school of hard knocks. Perhaps this is a degree course at the university of Clapham Common.

 

Punters beware both the small print and the downsides of compound interest. Subjects that they will never fully understand!

The Daily mail does a hatchet job on the Equity Release, Lifetime mortgage market. A very significant chunk of lending business. Some poor widow has been taken to the cleaners by an equity release package supplied by that paragon of virtue the Prudential. I have some sympathy for both the poor widow and the Prudential. This was set up some thirteen years ago when interest rates were more, how do we say it reasonable. But in those days the products were much more embryonic. The reason the Prudential entered this market was to provide a hedge against long term annuity liabilities by acquiring long term assets with equivalent yields. That’s why there is an exit penalty but don’t expect everyone to understand this. By the same token don’t expect people to understand compound interest. It’s quite likely that the salesman who sold this (what has turned out to be) crock didn’t understand it either. The FCA will never find the clarity of words to educate people making asses of themselves. The Equity Release business is fundamentally improving in its protection of borrowers just make sure you know someone trustworthy who understands finance to give you a second opinion.

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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