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Wellesley Is Still A Sell
Scott is a 4thWay reader to whom I am grateful since he takes the trouble to send us much needed feedback. (Hint hint. You can send your praise, requests and constructive criticism to allofus@4thway.co.uk. Thanks!) Scott just asked me if, in the light of new information from Wellesley & Co.*, would I change my Welleslley sell recommendation from January this year?
Back then in the original report, Why I'd Sell Wellesley Loans, I explained that not only do we need more information from Wellesley, but we also need a lot more time to see how things go in reality. In addition, in my view interest rates are clearly way too low.
Yet regarding the information provided by Wellesley, there has been no substantial improvement on that front and indeed it's gone even further backwards in places.
Why doesn't Wellesley publish its full loan book to show the precise performance of every loan, or at least provide it to 4thWay, as all other P2P lending platforms that are Wellesley-sized or upwards do?
Scott sent us this recent blog from Wellesley, asking if the information within improved Wellesley's standing in my view. I found the blog provides partial information which I regret to say I find to be as unclear and ambiguous as usual for Wellesley, leaving more questions than answers; for example, what exactly is a “provision stock” and how segregated or guaranteed is this pot from Wellesley's own money?
After much prior probing and digging I believe it is money to pay for bad debts that is only available if Wellesley is both able to afford it and willing to use it in that way, as opposed to a pot that is segregated just for lenders like most P2P reserve funds. But this should be made clear.
In the blog, it states Wellesley has 65 outstandsing loans. Based on other information from Wellesley, I think this must surely be a typo. Either that or the other information is wrong. Goodness knows we all make mistakes and I've probably made a dozen typos here already. But Wellesley has not demonstrated that it takes great pains to check that it is entering the correct figures on its statistics page (which is also very vague and of negligible use to lenders) and also now, it seems, in its blogs. Accurate and reliable information is vital for good investment decisions.
The Wellesley blog summarises the position of three loans that have gone badly. That's an important step, providing information like that for these kinds of loans, which are large short-term property loans or development loans.
A one-sentence summary of the position on bad loans like that is perhaps sufficient – in normal circumstances. However, as I have written before, I think a P2P lending site that has become increasingly intransparent needs to take far greater steps to be even more open about all its loans to make up for its increasingly secretive past.
In addition, according to its statistics page, around 25% of its loans are not performing as hoped (so-called “non-performing” loans). I see absolutely no way that this can be defended as typical for this type of lending. What's going on with each of those loans?
The blog didn't mention that 25% of loans are non-performing; it just mentioned the 16% of loans approved in the year 2015 that have had their terms changed.
I don't enjoy writing reports like this, having been raised on the idea that if you have nothing nice to say don't say anything at all. But Wellesley leaves dozens of question marks and no place to start to answer them. Its directors' combined income of £900,000 last year was more than sufficient, they could have saved 5%-10% of that to hire someone who can prepare clear, comprehensive and accurate information for lenders.
It remains impossible for me to assess the risks of investing in Wellesley's products and there is no excusable reason for this. Therefore in my view Wellesley remains a strong sell.
At present, no new money is allowed into Wellesley's P2P loans, which could be for the best.
Read related Wellesley articles:
Why I’d Sell Wellesley Loans, 25th January 2017.
Wellesley Update Since The 2017 Tip, 4th May 2018.
Want a simple checklist that helps you quickly decide when not to lend? See 4thWay's 10 P2P Investing Principles.
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