Half-year losses triple at UK peer-to-peer lender Funding Circle
Funding Circle’s losses more than tripled in the first half of the year as the sudden onset of the coronavirus pandemic forced the peer-to-peer lender to write down the value of loans it hoped to resell to other investors.
Funding Circle makes small business loans on behalf of retail investors and other financial institutions, and typically holds only a small number of loans on its own balance sheet. However, it was forced to take £96m of fair value write-downs over the six-month period, relating to investment vehicles that had yet to be sold.
The adjustments, along with an impairment of all goodwill related to its US business, led it to a pre-tax loss of £115m for the six months to June, compared to a loss of £31m. pounds sterling at the same time last year.
Samir Desai, managing director, said “due to the speed and severity of Covid – how quickly it hit – we weren’t able to sell these loans as quickly as we would have liked”.
The company also warned that investors in some of its loans were on course for their first losses. Annualized yields on the £619m of US loans issued last year are now expected to be around minus 0.9%, while at the start of the year loans would generate positive returns of up to 7 .8% per year.
Mr. Desai pointed out that the performance of the rest of the company’s portfolio had been resilient, despite an increase in expected default rates.
“If you look at the UK numbers, we’re delighted that every cohort should generate a positive return despite going through what is about the worst possible recession for small business borrowers,” he said.
The company’s shares fell 7.5% to 57p in morning trading.
Since April, Funding Circle has focused on lending through government-backed business support schemes, providing £815million through the Coronavirus Business Interruption Loan Scheme (CBILS) in the UK and around £500 million through the Paycheck Protection Program in the United States.
He warned in April that he wasn’t sure what would be the financial impact of the programs. On Thursday, however, it said CBILS loans had “similar economics” to its traditional loans and renewed its earlier target of breaking even on an adjusted earnings before interest, tax, depreciation and amortization basis. here the end of the year.
Mr Desai was also optimistic about the long-term impact of the pandemic by encouraging more businesses to use online lenders and proving the 10-year-old company would be able to survive a downturn.
“We wouldn’t have wanted a recession, but I think it’s a chance for us to prove that the loans we’re making are good and the model is very resilient,” he said.