Peer-to-peer lending seems to be all grown up and ready to settle down. Lending Club, the world’s biggest such business, is poised to raise $500m in a listing, spurning the tech hub Nasdaq and opting instead for the New York Stock Exchange.
Peer-to-peer may be losing its edginess on this side of the Atlantic, too, as the traditional banks that P2Ps were supposed to be competing with cosy up to them instead. Already, Santander has done a deal with Funding Circle. Now Royal Bank of Scotland seems to be trying to shake off its staid, part-nationalised image by setting up a P2P platform of its own.
At the same time as looking modern, RBS may also be pleasing its biggest shareholder. Over the summer George Osborne heralded new legislation that would force big banks to help rejected loan applicants secure funding from alternative sources, such as P2P companies. Doing it all in the same place is handy – a bit like public service banking. It’s a shame that RBS has commercial shareholders, alongside the UK Treasury, and is supposed to be a commercial organisation, rather than an instrument of the state.
But sniping aside, undue state influence may not be the biggest risk. The P2P concept is untested in anything other than an environment of ultra-low interest rates. When rates rise, so will defaults. People investing the money to back loans potentially have a lot to lose. For your average P2P investor, that may come as a bit of a shock. Many of them, anecdotally at least, seem to view these platforms as glorified high-interest savings accounts.
For RBS, as for any bank that clutches this adolescent industry to its bosom, there are extra risks. Mediating the sale of a product that later backfires can have nasty financial and reputational consequences. Sound familiar?
Pulling a Suffolk punch
Greene King, Suffolk brewer of Abbot Ale, IPA and Old Speckled Hen, has more in common with Suffolk Punches than just their point of origin. The huge chestnut draughthorses that dominate Ipswich FC’s crest and have pulled many a dray, are known for their size, their endurance and their surprisingly energetic gait. But there is not much demand for their pulling power these days and few Suffolk Punches are left.
That also goes for big, old-school brewers such as Greene King with its 2,000 pub estate. Ale has been around as long as civilisation but in this age of drive-drinking laws and smoking bans, pubs absorb capital and the returns are, well, small beer.
But unlike rivals, Greene King has endured. It did not sell off its real estate or fuel up with cheap pre-crisis debt. Instead, it withstood the downturn, making judicious acquisitions here and there to keep its earnings trotting along whenever energy levels showed signs of flagging.
The £723m bid for Spirit Pub is just such a deal, albeit its biggest. Spirit’s 1,200 pubs would slot well into the brewer’s south and southeast bias. Barclays reckons at 109.5p, teaming up with Spirit should lift Greene King’s earnings by 6 per cent and returns on capital to 7.9 per cent against a weighted average cost of capital of 7.1 per cent. There are plenty of synergies to be had from cutting out duplicate costs. Parcelling up and selling off unwanted tenanted pubs could come afterwards. Promising 8p in cash was all the sugar needed to persuade Spirit’s board to open the books. It should also lure skittish Spirit shareholders.
Injecting new bloodlines into Greene King should not change its character. But driving a much bigger team could be difficult in a sector where returns are already hard to come by. The risk is that Greene King, like the Suffolk Punch, becomes a victim of its size.
Old Lady fumbles
Old story in the new cyber age: a bank updates its systems over the weekend and a technical glitch stops all cash payments on Monday. This time, though, it was the Old Lady of Threadneedle Street herself. On Monday, the Bank of England’s system for settling the gazillions transferred between banks and companies every day to cover anything from payrolls to big corporate deals crashed.
If it had been Royal Bank of Scotland or Lloyds Banking Group that had messed up, shares would have tanked, politicians would be declaring crimes against humanity and customers would be threatening to jump ship. The days of IT failures that hit RBS’s customers in June 2012 still hang over the bank: the oh-so-speedy Financial Conduct Authority continues to probe the affair, which cost RBS £175m in compensation.
In this case, probably the best that BoE customers can expect is that the Old Lady gets a drubbing from politicos at the next Treasury select committee. Vengeful bank bosses, who in the past have been on the receiving end of the Old Lady’s ire, should start drafting their letters to MPs now.
P2P lending email@example.com
Greene King and Bank of England firstname.lastname@example.org