£15m scandal hits boom in new style of lending
SO-called peer-to-peer lending has been heralded as the future of saving and as a way for businesses small and large to secure funding.
For the uninitiated, peer-to-peer is essentially a way for savers to lend their money to other individuals or businesses in the form of a loan. It cuts out the middle men at the banks or in commercial finance.
The risk is if the borrower defaults on their loan the saver could lose their cash. In the UK, savers lent out £715m in this way over the first three months of the year alone – and its a rapidly growing market.
Inevitably, as the industry has developed, several investment funds have launched to invest in these peer-to-peer loans.
And almost as inevitably concerns have risen about just how safe this industry really is.
Yesterday, these fears were thrown in to the open when two listed companies which invest in peer-to-peer loans were forced to reassure investors over their relationships with US lender LendingClub, which has overseen some £13bn of peer-to-peer loans in the US. UK-based P2P Global Invest
ments and VPC Speciality had to reassure customers and deny investing in LendingClub after its chief executive stepped down amid allegations of faulty loans.
Its chief executive Renaud Laplanche resigned following an internal review of the sales of around £15m of ‘near-prime’ loans (that is, loans from borrowers with a relatively good, but not perfect, credit score) to a single investor in contravention of the investor’s instructions.
P2P Global Investments said that although it does invest in LendingClub loans it is not exposed to the area of the business which the review concerned.
It said it invests only in ‘prime’ ( high quality) loans. P2P GI’s shares fell 2.6pc, or 24.5p, into the red amid uncertainty, finishing at 915p. Meanwhile, VPC Speciality said it does not invest in the company and ‘has never had any exposure to LendingClub nor any loans originated by it’. VPC’s shares dropped 1.9pc, or 1.75p, to 90.25p.
The FTSE finished in positive territory, up 0.7pc, or 41.84 points, to 6156.65. One of the biggest climbers of the day was outsourcing firm
Capita. In a trading update the business said it had secured major contracts worth £458m and is confident of achieving its target of organic revenue growth of 4pc in 2016. Capita has acquired four companies, for a total of £23m, and disposed of two businesses since the start of the year.
Experts at AJ Bell pointed out that this time a year ago the business had secured £1.2bn of contracts, but said the pipeline for the year looked strong. Confident investors drove the share price up 5.3pc, or 54p, to 1078p.
Ocado delivered a share price increase of 9.3pc, or 25p, to 295p yesterday. The retailer, which sells Waitrose products alongside its own grocery brand, is hoping to sign a deal with an international retailer to provide its delivery and automated warehouse services.
It currently has a similar agreement with supermarket chain Mor
rison (up 0.2pc, or 0.4p, to 191.3p) which is in the process of being renegotiated.
There have also been whispers of the retailer being a takeover target for Amazon, though both have always refused to comment. Either way, investors had hoped the deal with an overseas retailer would have been finalised already this year, but talks have been ongoing. Perhaps confidence that negotiations could soon conclude put the share on investors’ shopping lists yesterday.
Telecoms provider Adept’s share dialled up 1.9pc, or 5p, to 272.5p after it announced an acquisition. The firm provides landline, broadband and mobile services for small and medium-sized businesses. Yesterday it revealed it had purchased Comms Group, a specialist communications provider, for an initial amount of £3.5m. Adept said the purchase should immediately enhance its earnings.