Thanks, first I’m seeing anyone report this as the reason.
The 2% they were operating under was a joke (less than 1/3rd Lehman’s capitalization), 30% on the other hand, seems outright punitive if true.
Timing is weird too.
The 2% they were operating under was a joke (less than 1/3rd Lehman’s capitalization), 30% on the other hand, seems outright punitive if true.
Timing is weird too.
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.
https://www.lowyinstitute.org/the-interpreter/many-trails-an...
Though my position is that 30% capitalization is actually reasonable and that our current collective level of leverage is unnecessarily unstable.
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