[whatok]

There's a regulatory draft that requires small business lenders like Ant to warehouse 30% of the loans they originate vs the 2% that they currently have on balance sheet. This draft was disclosed after regulators met with Jack Ma and other Ant executives. No clue why this was only done now but this significantly changes valuations.

[dclusin]

I remember reading Jack Ma is on record describing large Chinese bank business models as analogous to pawn shops and in general criticizing regulators. Probably had something to do with it.

[xster]

If you listen to his whole speech, he's making a lot of very generalized criticisms on China's financial regulatory systems, which as a whole aren't inaccurate. But you're left wondering at the end how does it specifically relate with what he's concretely asking for (which presumably is just increasing the specific rate at which "JieBei" short-term debts can be repackaged and re-securitized). In other words, it just seems like a big obfuscation and dance around to ask for neoliberalism without saying the word and strawmanning the flip side as obsolete "pawn shop mentality".

Granted, regulatory hurdles this late in the process seems super opaque and vindictive. But on the flip side, leveraging debt at this level seems like a massive systemic risk to the social order considering the risk ratings on the repackaged security will be equally opaque within the Ant debt product offerings. It's fascinating seeing this as China more or less writing Glass-Steagall on the fly the day before the IPO. Despite it looking like 2 kids fighting over an ice cream, I think it'll be massively consequential in A) demonstrating leveraging on new forms of financial instruments like ML-driven peer-to-peer lending based on massive amounts of Ant/Alibaba consumer data, and B) it being a fork in the road on China setting a precedent on neoliberalism or politics controlling capital.

[justicezyx]

I mean, no one can expect different thoughts from financial gamblers. Jack Ma was totally a non innovative person. Like his whole enterprise so far is following western examples and the playbook. Now he is happily adopting the financial revolution narrative, disguised under the tech innovator facade.

[thedudeabides5]

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.

[112012123]

This is a little different than what Lehman got in trouble for in the US.

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.

[netheril96]

I don’t think it is punitive. Ant primarily lends to individuals without any collateral. Those are inherently high risk debts and thus needs more safeguards.

[powerapple]

The timing is weird because, in my opinion, that Ant rush to IPO after knowing the policy is going to come in effect soon. There were almost 3k fintech (p2p lenders), the government has been restricting the market, now there are 15 of them.

[whatok]

The timing makes sense if it is in response to his recent remarks but the regulation is extremely punitive vs potential outcome if this IPO gets botched.

[secretasiandan]

how do you determine the punitive capitalization ratio for non-capitalist regulation?

[wazokazi]

From what I can gather from public information, the loan volume is ~$300B/year and growing rapidly. If they have to hold a 3rd of that on their books, that’s a lot of capital they have come up with. And maintain a loss reserve. I guess, they are being asked to become a bank.

[powerapple]

https://sg.news.yahoo.com/china-p2p-financial-refugees-face-...

the 2% is not what they have on their balance. 2% of the total loan was from Ant group money, the rest 98% money are from banks and ABS.

Government has been restricting consumer borrowing for a few years now. Consumer borrowing is discouraged. It was easy money for tech companies, almost all tech companies are in this business including Tencent, Baidu, JD, 360 and so on.

[robotresearcher]

Alibaba stock is down >8% today, and a bunch of people must have known about this issue in advance. Smells bad.

[Leary]

the news came out before the market opened in the US