Category: Blog

As many entrepreneurs and SMEs discover to their despair, it has become difficult to count on the traditional banks when they need a loan for a new project or to expand their business.  Traditional banks across Europe continue to reduce their commercial loan books as a result of the Basel III rules.  A check-the-box culture, a sharp reduction in number of relationship managers and lengthy and unwieldly loan application processes make it increasingly difficult for many entrepreneurs and SMEs to rely on traditional bank finance.  This void is being filled by a number of alternative lenders, such as Fiduciam.  2019 has been a good year for Fiduciam. We continued our rapid expansion by hiring 25 additional staff members. Our loan book surpassed €260 million in size and monthly production has been increasing rapidly through the year. October was a record month with over €51.7 million of new loans provided to entrepreneurs and their enterprises. In 2019 we also successfully expanded into Germany by opening an office in Frankfurt and we closed our first Scottish loan.

We are looking forward to an even more successful 2020 and wish all our clients a happy and prosperous new year.

The world of finance and corporate culture are not always the best partners, as I have been able to witness extensively during my city career.  There is the culture of greed, but greed is a biological imperative and not really culture.  During my days at Merrill Lynch the board wanted to define a clear culture and launched the “five principles”, I still remember them by heart:  client focus, respect for the individual, teamwork, responsible citizenship and integrity.  But as the synthetic CDO debacle demonstrated during the financial crisis, these principles did not mean a lot to a number of Merrill Lynch employees and managers.  Had they done, Merrill Lynch would still be around as a successful independent firm.

For a corporate culture to be successful, it cannot just be a declaration, it needs to be embraced by all employees and be part of the DNA of a company.  It pulls employees together behind a mission, brings meaning to their work, gives them a sense of belonging, allows them to take pride in their jobs and motivates them.  This in turn leads to better performance and more satisfied clients, as research has shown over and over. 

In the financial services industry, the importance of corporate culture goes well beyond this, as it keeps a check on the biological imperative we are all born with: greed.  Financial services and greed are like fuel and fire.  Therefore, corporate culture has a very important role to play here, to channel this biological imperative into something constructive and sustainable. 

In this respect too much focus tends to be on rules and policies.  These can easily be circumvented and rarely deal with all situations in our complex world.  I am of the strong belief that for risk management to be successful, corporate culture is much more important than rules.  Yet it beggars belief that most of the focus of regulators and bank managers still tends to be on the latter, whilst largely neglecting the former.  The financial crisis did not happen because of a lack of regulation, it happened because too much reliance was placed on regulation and nobody cared about the corporate culture of financial institutions. 

It is the role of management to install a corporate culture, it does not grow simply by itself.  Therefore it is crucial for each manager to live the corporate culture day in, day out.  Just proclaiming a few principles does not make a lot of difference, as the Merrill Lynch example shows. 

The corporate culture I try to embody every day at Fiduciam is one of diligence, integrity, hard work and fairness, in an environment that is diverse, young, pleasant and ambitious.  No policy can ever replicate the benefits such culture brings and, most importantly, such strong culture is the necessary foundation for our rapid growth as a successful marketplace lender.

There has been much focus on the UK property market and whether house prices are rising or falling and whether this may or may not be due to Brexit.  What we hear less about is what is happening with property prices with our closest neighbour the Republic of Ireland.

Ireland is most often quoted these days purely in relation to the potential backstop. What few papers report on is the current housing crisis in Ireland.  Just a few years ago Ireland had one of the world’s highest rates of home ownership, but this ownership has dropped and both property prices and rents have risen dramatically. In fact, in May of this year, research by Deutsche Bank declared Dublin in the ‘Top 10 most expensive places to rent in the world’.

The shortage of affordable homes is a huge issue, with Ireland’s Department of Housing, Planning and Local Government in August announcing €84m in funding for 25 local authorities providing 1,770 affordable homes nationally. As a long-term solution, this is fine, but how does Ireland deal with this issue in the short term?

It is estimated that 685,000 houses were built in Ireland in Celtic Tiger years, between 1997 and 2007. Where have all these houses gone? Figures by the Department of Finance back in March of this year revealed that €24 billion of loans, including many substantial buy-to-let portfolios have been sold to funds at an average discount of 52%. Many of the sales were completed without the consent of mortgagees. Most of these were non-performing loans and the purchasing fund often wastes no time in foreclosing on the loans. This cycle still continues with Ulster Bank announcing the sale of 4,000 loans worth €900million as recent as July of this year.

How can short term lenders relieve this pressure? The answer is simple, they fill the gap where mainstream lending is simply not available. For example, Fiduciam has provided numerous loans which have allowed borrowers to buy their old portfolios back from the funders. The borrowers can negotiate with the funders directly, safe in the knowledge that they have a reliable funder supporting them through the process. The properties are then brought back on the market and rented out or sold.

Loans such as these have also enabled borrowers to complete outstanding development works on “ghost estates” that have been sitting dormant since the collapse of the housing market. This brings more properties into the market which, in turn, eases the housing crisis in Ireland. Borrowers can then refinance with a mainstream lender when their properties have been modernised and rents have been normalised.

Ireland’s businesses are also crying out for lenders to help them get out of a position where they might lose everything by restructuring their loans. This affords borrowers an opportunity to re-establish their business with a viable exit via mainstream finance, or the sale of the assets on the open market.  Such short to medium term loans provide the perfect ‘pit-stop’ for borrowers.  In essence, providing ‘mid-stream’ lending prior to the subsequent exit with a mainstream lender.

Loans for such purposes are relatively new in the Republic of Ireland, but they can be a positive life saver for borrowers whose loan has been sold and who are consequently at risk of repossession.

The opportunities within our industry are myriad, the trick is to attract the right people and then to make sure they are nurtured and given the chance to achieve their own goals, whilst also achieving your company goals.

Henry Ford, Founder of the Ford Motor Company, said “The only thing worse than training your employees and having them leave is not training them and having them stay”.

At Fiduciam we want our employees to stay for all the right reasons. When recruiting, whether it’s a graduate, an intern, or someone with years of experience, the most important thing is to ensure the people you employ have the right attitude and fit your business. 

With the right attitude you have the foundations for someone to build a career, rather than just turn up for work.

For career progression to be valid you need to provide explicit support to allow your staff to thrive and develop.   You can then uncover potential and assist your employees to progress to more senior roles.

Structured training is therefore vital.  Here at Fiduciam, for instance, we have a training and development programme that is designed with career progression as the ultimate goal. However, there are other benefits including increased motivation and engagement and most importantly a reduction in staff turnover. Giving employees the tools to upskill throughout their careers also means you can reduce supervisory needs and enhance satisfaction and confidence.

The way we run our training programme is on a module basis using the talents of existing employees in every department to carry out the actual training. This not only showcases the experience of existing team members it gives them an extra sense of worth as they pass on their knowledge to new team members and help them rise through the ranks. Our multi-faceted training programme consists of 28 modules, such as cashflow analysis, real estate valuation, legal documentation, credit analysis, etc. Career progression is supported by the successful completion of relevant modules. There has been over 110 hours of training provided for Fiduciam employees over the last 9 months since the inception of the training programme.

The key thing with recruiting is that when you get the right person you never let them forget that you believed in them enough to hire them, and that you continue to believe in them throughout their career.

Clint White, director, adds “The recent EY UK Bridging Market Study has highlighted ‘access to talent’ as one of the two most important challenges for bridging lenders.  We place a huge emphasis on our training programme to not only attract new talent but, equally importantly, to cultivate and retain that talent.  By doing this we enhance our company reputation and profile as an employer invested in its staff.”

Whilst the P2P model gained traction rapidly following the financial crisis, it exhibits a number of shortcomings.

Firstly, retail clients and investors are often simply driven by yield, not evaluating the risks sufficiently.

In some cases ‘mom and pop’ type investors are not sophisticated enough to analyse the risks, looking only at the headline rate of interest they believe they will receive.

Several P2P platforms also do not provide sufficient information to their investors for them to make a proper assessment of each individual loan, even should the investor be qualified enough to do so.

This information asymmetry between P2P platform and investor is easy to understand from a GDPR perspective, but it does make the investor very dependent on the assessment that has been made by the platform.

A key concern is that many P2P platforms position themselves as an intermediary, but then, unlike any other type of lender, they do not invest themselves into their own loans.

This can cause a lack of alignment with the retail investors and means that the platform risks comparatively little in relation to the investor.

Arguably it also means that some P2P platforms have less incentive to ensure that each loan is underwritten as diligently as it might otherwise be if the platform or lender had its own money involved.

The loan may also be managed less prudently as a result, this is clearly not the case with every P2P platform, but the failure of Lendy does highlight the shortcomings of this model.

With many P2P platforms competing for the same retail investors, the platforms often pursue the highest yield deals, which tend to be the riskier loans.

Lendy is a good example of this, but naive investors may well be oblivious to the fact that this is why they are promised the higher returns.

Finally, a number of P2P platforms also provide access to institutional investors at preferred terms. The question is, what downside such “preferred nation status” deals could cause for the retail investors.

There are obviously a number of high-quality P2P platforms out there, and the demise of Lendy has somewhat unfairly tarnished the image of this entire sector.

However, it is questionable whether a number of the P2P platforms can get to the necessary scale to operate profitably and to play a meaningful role in the lending landscape.

One could expect many sub-scale P2P platforms to have challenges and we expect further P2P lenders to disappear both this and next year.