The viability of Lendy was “fundamentally undermined” even before the City watchdog gave the failed property lending platform its full stamp of approval, a report by its administrators has found.
Lendy, which collapsed in May after trying unsuccessfully to match retail investors chasing high returns on their capital with property developers seeking loans, received formal authorisation to do business from the Financial Conduct Authority in July 2018.
Before that date, according to a report by Lendy’s administrators RSM, the platform’s cash position had become “increasingly strained” as new investments declined “significantly” and it became unable to fulfil its development loan commitments.
RSM has calculated the amount of investors’ capital it can recover from Lendy will be 57p-58p in every pound, on average and before administration costs. Some of Lendy’s loans have only a 7 per cent prospective recovery rate, RSM said, while others may still be repaid in full.
The FCA said it had “set the firm a series of requirements in order to meet the conditions for authorisation” in July 2018, although it subsequently “subjected the firm to increasing scrutiny and supervision,” when “further information came to light”. In April of this year, the regulator forced Lendy to ask its permission before releasing client money and banned it from disposing of any assets.
An independent analysis carried out by the Financial Times last October found that almost two-thirds of borrowers raising money via Lendy’s platform had failed to repay the money on time.
Lendy, which changed its name from Saving Stream in 2017, rose to prominence as the sponsor of the annual Cowes Week regatta and advertised returns of up to 12 per cent for the retail investors who funded its loans.
The collapsed platform has £152m of loans outstanding, RSM said.
The RSM report found, however, that a large proportion of the borrowers served by Lendy were now in some form of insolvency process. Of the 54 loans still on Lendy’s books, 35 were attached to projects where the property developer had gone into administration or receivers had been appointed to seize assets.
“It is anticipated there will be further insolvency appointments,” over loans Lendy had extended to property developers and that would not be repaid, RSM said.
Lendy operated without full authorisation from 2012, and made £400m of loans before being fully authorised by the FCA in 2018.
Ahead of Lendy winning the “approved platform” status by the FCA, the level of investment it attracted had also fallen sharply, from £15m in the first quarter of 2017 to £5m in the fourth quarter of that year, RSM said.
The platform described its full authorisation as “a validation of our efforts to move from a young start-up to an established mainstream lender, with the ability to disrupt the banking model”.
Before 2014, peer-to-peer platforms were not regulated by the FCA. The City watchdog then began overseeing the sector by giving platforms what it called an “interim permission” to operate before allowing those whose business models and processes it deemed satisfactory to win the “full authorisation” status.