Brexit without material impact on Lending Deposit
While Lending Deposit regrets the decision by the population of England and Wales to withdraw from the European Union, the impact of this decision will be restricted - by and large - to some UK borrowers of Lending Deposit.
Given Lending Deposit’s fixed return business model, our lenders will feel no impact of “Brexit”, as the interest rates we pay to our EUR, USD and GBP lenders will remain the same. Lending Deposit’s business model is very robust in face of external shocks, which makes lending to Lending Deposit a great choice, especially in turbulent times like these, as we can keep offering exceptionally high risk-weighted returns.
In the short-term, Lending Deposit can easily withstand the current turbulences for the following reasons:
- No currency risk: Lending Deposit does not assume currency risk and always invests new borrowed funds in assets of the borrowed currency. The significant fall in the pound sterling (GBP) respective to other currencies, therefore does not have a material impact on Lending Deposit.
- Relatively low and short-term exposure to UK businesses and consumers: Our lending exposure to UK consumers and businesses is relatively limited compared to the US and continental Europe and with much shorter term durations. We will continue lending to UK consumers and businesses but at a lower growth rate and by avoiding segments that are likely to be affected the most negatively by the vote.
- Very high safety cushion: Lending Deposit’s safety cushion (our own equity plus junior loans) is currently above 50% of total assets and is expected to stay above 50% for the remainder of 2016. This is a very high safety cushion to absorb short-term reduction in our limited holdings of marketable securities, which may be affected by global market turbulences.
Also in the long-term, Lending Deposit will not be materially affected by the UK leaving the EU
- As we are a financing company and not an investment fund or peer-to-peer lending platform, we do not need the EU “pass-porting” benefits that other UK based financial institutions take advantage of to operate in the rest of the EU.
- We do not expect that the UK leaving the EU will stop a UK company investing through alternative lending platforms in continental Europe, as these platforms usually accept investors from inside, as well as outside the EU.
- We not expect that there will be negative tax implications for us, our investors or lenders from the UK leaving the EU. We are currently paying our lenders gross interest (i.e. taxation happens in the country of residence of our lenders) and we will be able to continue paying our lenders gross interest even if the UK were not located in the EU.
Should, however, the eventual terms of the UK leaving the EU have material impact on our operations or lenders, we will be able to shift our operations to an EU domicile without any material impact given that we already now operate from two offices, one in London, one in Barcelona, Spain. Likewise, our service providers, lenders and borrowers are based across Europe, which allows us to periodically review the decision of the location of our principal office and take decisions accordingly.