6 ms·

There's a regulatory draft that requires small business lenders like Ant to warehouse 30% of the loans they originate vs the 2% that they currently have on bala

by whatok 6y ago

There's a regulatory draft that requires small business lenders like Ant to warehouse 30% of the loans they originate vs the 2% that they currently have on balance sheet. This draft was disclosed after regulators met with Jack Ma and other Ant executives. No clue why this was only done now but this significantly changes valuations.

thedudeabides5 6y ago
Thanks, first I’m seeing anyone report this as the reason. The 2% they were operating under was a joke (less than 1/3rd Lehman’s capitalization), 30% on the other hand, seems outright punitive if true. Timing is weird too.
- whatok 6y ago
  The timing makes sense if it is in response to his recent remarks but the regulation is extremely punitive vs potential outcome if this IPO gets botched.
- netheril96 6y ago
  I don’t think it is punitive. Ant primarily lends to individuals without any collateral. Those are inherently high risk debts and thus needs more safeguards.
- 112012123 6y ago
  This is a little different than what Lehman got in trouble for in the US. During the financial crisis, the core issue is that banks were making loans off their own balance sheet with reserves too small to cover the losses that eventually occurred. In other words, when borrowers defaulted the bank itself lost money. This made them insolvent and caused the whole collapse. In the case of Ant on the other hand, they essentially function as a lead generation platform for banks - currently 98% of "their loans" aren't really theirs at all, but rather are funded by their partner banks; if the loan defaults, it's the partner bank's problem, not Ant's. The reason this change is such a big deal is that forcing Ant to fund 30% of its own loans will require raising an absolutely enormous amount of fairly expensive capital, driving up costs and significantly decreasing the value of the company.
  - pushrax 6y ago
    If the loan is actually written by another bank, why is there any requirement on Ant? Though my position is that 30% capitalization is actually reasonable and that our current collective level of leverage is unnecessarily unstable.
    - whatok 6y ago
      Your underwriting standards are going to be different depending on how much skin in the game you have.
      - Klinky 6y ago
        Why would partner banks accept trash loans without doing due diligence? Though thinking about the housing crisis, greedy short-sightedness comes to mind. It's amazing how some of the people who claim to be the smartest with money are actually the dumbest and riskiest. Are they actually smart or just lucky they won a bet?
        srtjstjsj 6y ago
        Adding links to a chain makes it weaker, nor stronger.
        TearsInTheRain 6y ago
        Governments have a history of bailing out the financial system. Lenders take that into account and will take on riskier loans since they effectively have a put on them.
    - balola 6y ago
      It's not, the banks lend their excessive cash to a big tech company, Ant then use that money to make small/short-term loans with "big data" credit ratings to individuals unqualified for low-interest bank loans.
      - pushrax 6y ago
- secretasiandan 6y ago
  how do you determine the punitive capitalization ratio for non-capitalist regulation?
- powerapple 6y ago
  The timing is weird because, in my opinion, that Ant rush to IPO after knowing the policy is going to come in effect soon. There were almost 3k fintech (p2p lenders), the government has been restricting the market, now there are 15 of them.
dclusin 6y ago
I remember reading Jack Ma is on record describing large Chinese bank business models as analogous to pawn shops and in general criticizing regulators. Probably had something to do with it.
- justicezyx 6y ago
  I mean, no one can expect different thoughts from financial gamblers. Jack Ma was totally a non innovative person. Like his whole enterprise so far is following western examples and the playbook. Now he is happily adopting the financial revolution narrative, disguised under the tech innovator facade.
  - dmix 6y ago
    I would love to have something like Alipays integration here in Canada or in any western country. They truly are doing something with technology that isn’t found anywhere in the west. Part of which is also due to WeChat penetration and coverage. But few western countries let you do so much with just a smartphone as China.
    - balola 6y ago
      The big diffrence is debit card-based and credit card-based, Ant and Chinese banks take no responsibility of these one-off domestic transations and offer no consumer protection, while western banks need to worry about money-laundering and terrorism and risk management. WeChat Pay don't even offer customer support. It's this special gated environment enabled payment tools, they just process this money and be done with it. Alipay & Wechat and Chinese banks don't care about what is your business doing are they shady or not, unlike Paypal.
      - glitchc 6y ago
        I don’t believe this for a split second. I’m certain China cares if money being spent somehow harms the CCP. Their monitoring motivations are distinct from the west, but monitoring definitely exists.
wazokazi 6y ago
From what I can gather from public information, the loan volume is ~$300B/year and growing rapidly. If they have to hold a 3rd of that on their books, that’s a lot of capital they have come up with. And maintain a loss reserve. I guess, they are being asked to become a bank.
robotresearcher 6y ago
Alibaba stock is down >8% today, and a bunch of people must have known about this issue in advance. Smells bad.
- Leary 6y ago
  the news came out before the market opened in the US
  - robotresearcher 6y ago
    Right, and it opened about 9% lower than yesterday's closing, recovering about 1% since then.
powerapple 6y ago
https://sg.news.yahoo.com/china-p2p-financial-refugees-face-084611468.html https://sg.news.yahoo.com/china-p2p-financial-refugees-face-... the 2% is not what they have on their balance. 2% of the total loan was from Ant group money, the rest 98% money are from banks and ABS. Government has been restricting consumer borrowing for a few years now. Consumer borrowing is discouraged. It was easy money for tech companies, almost all tech companies are in this business including Tencent, Baidu, JD, 360 and so on.

by whatok 6y ago

thedudeabides5 6y ago

Thanks, first I’m seeing anyone report this as the reason. The 2% they were operating under was a joke (less than 1/3rd Lehman’s capitalization), 30% on the other hand, seems outright punitive if true. Timing is weird too.

whatok 6y ago
The timing makes sense if it is in response to his recent remarks but the regulation is extremely punitive vs potential outcome if this IPO gets botched.
netheril96 6y ago
I don’t think it is punitive. Ant primarily lends to individuals without any collateral. Those are inherently high risk debts and thus needs more safeguards.
112012123 6y ago
This is a little different than what Lehman got in trouble for in the US. During the financial crisis, the core issue is that banks were making loans off their own balance sheet with reserves too small to cover the losses that eventually occurred. In other words, when borrowers defaulted the bank itself lost money. This made them insolvent and caused the whole collapse. In the case of Ant on the other hand, they essentially function as a lead generation platform for banks - currently 98% of "their loans" aren't really theirs at all, but rather are funded by their partner banks; if the loan defaults, it's the partner bank's problem, not Ant's. The reason this change is such a big deal is that forcing Ant to fund 30% of its own loans will require raising an absolutely enormous amount of fairly expensive capital, driving up costs and significantly decreasing the value of the company.
- pushrax 6y ago
  If the loan is actually written by another bank, why is there any requirement on Ant? Though my position is that 30% capitalization is actually reasonable and that our current collective level of leverage is unnecessarily unstable.
  - whatok 6y ago
    Your underwriting standards are going to be different depending on how much skin in the game you have.
    - Klinky 6y ago
      Why would partner banks accept trash loans without doing due diligence? Though thinking about the housing crisis, greedy short-sightedness comes to mind. It's amazing how some of the people who claim to be the smartest with money are actually the dumbest and riskiest. Are they actually smart or just lucky they won a bet?
      - srtjstjsj 6y ago
        Adding links to a chain makes it weaker, nor stronger.
      - TearsInTheRain 6y ago
        Governments have a history of bailing out the financial system. Lenders take that into account and will take on riskier loans since they effectively have a put on them.
  - balola 6y ago
    It's not, the banks lend their excessive cash to a big tech company, Ant then use that money to make small/short-term loans with "big data" credit ratings to individuals unqualified for low-interest bank loans.
    - pushrax 6y ago
secretasiandan 6y ago
how do you determine the punitive capitalization ratio for non-capitalist regulation?
powerapple 6y ago
The timing is weird because, in my opinion, that Ant rush to IPO after knowing the policy is going to come in effect soon. There were almost 3k fintech (p2p lenders), the government has been restricting the market, now there are 15 of them.

dclusin 6y ago

I remember reading Jack Ma is on record describing large Chinese bank business models as analogous to pawn shops and in general criticizing regulators. Probably had something to do with it.

justicezyx 6y ago
I mean, no one can expect different thoughts from financial gamblers. Jack Ma was totally a non innovative person. Like his whole enterprise so far is following western examples and the playbook. Now he is happily adopting the financial revolution narrative, disguised under the tech innovator facade.
- dmix 6y ago
  I would love to have something like Alipays integration here in Canada or in any western country. They truly are doing something with technology that isn’t found anywhere in the west. Part of which is also due to WeChat penetration and coverage. But few western countries let you do so much with just a smartphone as China.
  - balola 6y ago
    The big diffrence is debit card-based and credit card-based, Ant and Chinese banks take no responsibility of these one-off domestic transations and offer no consumer protection, while western banks need to worry about money-laundering and terrorism and risk management. WeChat Pay don't even offer customer support. It's this special gated environment enabled payment tools, they just process this money and be done with it. Alipay & Wechat and Chinese banks don't care about what is your business doing are they shady or not, unlike Paypal.
    - glitchc 6y ago
      I don’t believe this for a split second. I’m certain China cares if money being spent somehow harms the CCP. Their monitoring motivations are distinct from the west, but monitoring definitely exists.

wazokazi 6y ago

From what I can gather from public information, the loan volume is ~$300B/year and growing rapidly. If they have to hold a 3rd of that on their books, that’s a lot of capital they have come up with. And maintain a loss reserve. I guess, they are being asked to become a bank.

robotresearcher 6y ago

Alibaba stock is down >8% today, and a bunch of people must have known about this issue in advance. Smells bad.

Leary 6y ago
the news came out before the market opened in the US
- robotresearcher 6y ago
  Right, and it opened about 9% lower than yesterday's closing, recovering about 1% since then.

powerapple 6y ago

https://sg.news.yahoo.com/china-p2p-financial-refugees-face-084611468.html https://sg.news.yahoo.com/china-p2p-financial-refugees-face-... the 2% is not what they have on their balance. 2% of the total loan was from Ant group money, the rest 98% money are from banks and ABS. Government has been restricting consumer borrowing for a few years now. Consumer borrowing is discouraged. It was easy money for tech companies, almost all tech companies are in this business including Tencent, Baidu, JD, 360 and so on.