Summer Newsletter 2019

Having launched six years ago with only 4 staff, Sancus now operates across six jurisdictions with 45 staff.

We have lent in excess of £1billion, over £640m of this in asset backed lending. This growth would not have been possible without the support of our Co-Funders, the individuals and corporates that borrow from us and, of course, the Sancus teams across Jersey, the UK, Ireland, Guernsey, Gibraltar and Isle of Man.

We have had a strong first half year, having already written over £76m in loans and we also recently completed our largest loan to date of £22m.

Adapting to the times…

We took the decision earlier this year to wind down the supply chain finance service we offered from the UK. Following a spate of Company Voluntary Arrangements (CVAs) of high profile stores, credit insurers significantly raised their premium and reduced their credit exposure limits making this market very difficult to operate within profitably.

Following this decision, we have streamlined the business, concentrated resources into the growth of asset backed lending and consolidated our UK team in London (The Minster Building on Great Tower Street).

“…glimmers of light in the UK economy?”

At a broader level, we have seen some challenges, with the continued painful process that is Brexit and now a leadership challenge, with no doubt more unexpected twists and turns ahead.

Despite this sense of “doom and gloom” there are some glimmers of light in the UK economy. Newly marketed properties in Britain increased in June and were at an all-time price high in some parts of the country (1). Also, the number of overseas buyers benefitting from the weak pound has been reflected in recent increased demand for the most expensive London homes (2). I have no doubt that London will remain a world player and a real estate market of global significance.

Though there has been no significant reduced market performance in the property sector to date, we remain especially focused on the quality and security of our loans at these times and vigilant to systemic shocks that can affect the economies in the jurisdictions in which we operate.

Stress in the alternative finance space

The recent collapse of UK property finance firm Lendy, despite being on the FCA’s (Financial Conduct Authority) watchlist, has brought some public attention to the alternative finance sector. This coincides with the FCA, quite rightly, bringing in legislation designed to protect retail investors later this year.

Sancus has always taken its responsibilities to Co-Funders and other stakeholders very seriously, with an experienced team concentrating on all aspects of the due diligence process. Our participation in every loan, alongside our Co-Funders adds greater assurance that our interests are aligned and demonstrates the confidence we have in our credit process.

The experience, character and moral fibre of our Borrowers is key in our decision making and no funding is made available without one of the Sancus team meeting each borrower and visiting each property or site.

Sancus loan book performance

Sancus has a very strong track record in terms of the performance of its asset backed loan book. We have advanced over 250 individual loans since we launched, lending over £640m and, to date, no Co-Funder has incurred any loss of capital. However, lending is not risk-free and, like any lender of meaningful scale, we have examples of loans that have gone into default. Since inception, three default situations have been resolved without loss to Co-Funders and six loans currently in default are being worked through. The asset backed nature of these loans, together with the other security we typically require (such as personal guarantees etc.) coupled with the experience of the team at Sancus in managing defaults and recovery situations, underpins our belief that the overall loss rate across the Sancus loan book will be very low.

Secondary market

We are now developing a secondary market for Sancus loans, giving Co-Funders the option of passing on their participation to other Co-Funders. This is currently being handled on a discretionary basis, so if you would like to know more about this please contact your relationship manager or one of the Sancus team.

Trading Platform

Following the successful launch of our UK Trading Platform earlier this year, we are now offering this service to our offshore Co-Funders. The platform allows Co-Funders to participate in loans through the Trading Platform, the user interface being similar to the Reporting Platform, currently used by the majority of our “offshore” Co-Funders but with the added functionality of being able to actively participate in loans online.

If you would like access to the Trading Platform please email info@sancus.com for further information.

Origination

Sourcing new borrowers and the origination of loans in a very competitive environment is key to the success of Sancus. A third of our employees are dedicated and proactive in this area, through direct communication with brokers, borrowers and a range of third party intermediaries including lawyers, accountants, trust companies and financial service providers across all our jurisdictions. We direct considerable resources into this and we have seen increased origination and growing awareness of the Sancus brand, particularly in the UK and Ireland where we expect to see the greatest future growth.

Summary

Despite initial shockwaves across the economy after the 2016 vote for the UK to leave the EU, it appears that our worst fears have, so far, not been realised. Nevertheless, significant economic uncertainty persists at a time when the alternative finance property sector has been shaken by the collapse of Lendy. These are times for a cautious, steady approach with an eye on new growth opportunities whilst ensuring that we do not sacrifice credit quality for yield.

The business remains prudent and thoughtful in how it manages its loan book and asset cover. It is by being disciplined in its credit decisioning and diligent in its execution that Sancus will deliver further sustained growth for the business and robust risk-adjusted returns for Co-Funders going in to the second half of the year.

We pride ourselves on open and transparent communication and, to this end, I am always available to speak directly with our clients.

Wishing you a relaxing and sunny Summer, I shall be in touch again later in the year.

Regards

Andrew Whelan CEO

The Sancus BMS Group

(1) Propertywire 7/6/19 https://www.propertywire.com/news/uk/price-of-property-coming-to-market-almost-reached-a-national-record-in-june/

(2) Knight Frank https://www.bloomberg.com/news/articles/2019-06-15/u-s-super-rich-are-descending-on-london-s-luxury-housing-market http://knightfrank.digitalmagazines.online/the-london-report-2019/p/4