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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
by 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 agoIf 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 agoYour underwriting standards are going to be different depending on how much skin in the game you have.
- Klinky 6y agoWhy 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 agoAdding links to a chain makes it weaker, nor stronger.
- TearsInTheRain 6y agoGovernments 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 agoIt'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 agoThat makes sense. Though it seems like it should be inconsistent with "if the loan defaults, it's the partner bank's problem, not Ant's."
- dmix 6y agoTo expand on your comment here’s a good article that explains Ant and how it’s structured plus it’s issues with Chinese regulators by an excellent Chinawatcher. https://www.lowyinstitute.org/the-interpreter/many-trails-ant-group https://www.lowyinstitute.org/the-interpreter/many-trails-an...
- vmception 6y agoSubscribed! I don't run into many people in the west that can have a nuanced view on what's happening in China and the place is just way too big and vibrant to deflect every topic into what's happening in one city or waaay on the other side of the Gobi desert. This doesn't happen on any other topic about any other country, and the other things going on are of keen interest to me.
- pbk1 6y agoI don't think 30% is unreasonable, nor would it require them raising that much cash relative to a company of their magnitude or Back of the envelope math: Majority of their portfolio is very short term, let's assume 6 months duration which is a 0.5yr weighted average life 300B in annual originations Assume they can get similar leverage as US securitization markets, which would be 95% advance rate (5% "skin in the game" for Ant) Then the equity required would be: 300B0.530%5% = ~2.25B, and they were planning to raise $30B as part of this IPO