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On the show today I am delighted to be joined by John Goodall CEO and co-founder of Landbay, a member of the P2PFA of leading UK P2P/marketplace lending platforms.
Landbay connect retail and institutional lenders with loans assets in the UK residential buy-to-let mortgage market. They have a well-secured “belt and braces” approach as not only do they have a first charge (mortgage) over an asset (“the building” :-D) but also the debt is serviced by a rental income stream from the tenants.
Stress testing is a very important topic across Finance, though, as all too often one that is poorly understood.
As one of the unique things about finance is that it almost always relates to the future, the unknown future. You buy a pint of beer now you drink it now. You eat a cheese sandwich now you know what it is like now. But invest money – and well, as Yoda put it, “always in motion the future is”.
Stress testing basically amounts to “what would happen if the shit hits the fan”? Would investors lose 1%, 10% or 100%?
In crowdfunding early-stage equity this is an easy calculation – the answer is obviously 100% – you’d lose the lot.
But what about in P2P (debt) in a well-diversified portfolio?
Well as we will discuss its not a trivial question. In essence as one has to decide how much of what type of shit this what fan. As I never cease to try and explain to the non-FS crowd who have lept on the Fintech bandwagon “in FS the devil is always in the detail”.
Not only that but in an uncertain world even so-called experts can’t be trusted. A couple of years ago the ECB (European Central Bank) had European banks “stress test” their portfolios. A few months later many banks had already experienced losses beyond those worse case expectations. So more press test than stress test and yet more FS BS.
John is an ideal person to talk to about this subject as Landbay have just spent time and money getting their portfolio independently stress-tested. So he is well placed to talk to the challenges, value and limitations of the methodology, as well as I hope reveal some of their results.
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