[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.

[ngcc_hk]

People argued as those regulation not done in 1 month he is under pressure for 1 year. Finally the rumour of sanction come before the possible election of Biden, they force the card and get that up. Then force back. Thus is the final stand not the cause. He has been silenced fir quite a while now. Not to do that just when money is all in — the share has been subscribed and for this cancel just lost to margin interest alone is us$70m.

Do not blame the messenger.

[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.

[dmix]

I would love to have something like Alipays integration here in Canada or in any western country.

They truly are doing something with technology that isn’t found anywhere in the west. Part of which is also due to WeChat penetration and coverage. But few western countries let you do so much with just a smartphone as China.

[uranusjr]

Trust me, you really don’t, I’m speaking in a country that did see much of the tech get adopted (Taiwan). I get how the method can be intriguing from a casual glance (I was like this when it started), but that quickly wore off when the wheels touched the ground. We spent way too much legislative resource trying to plug the holes, and I got to hear a lot of the problems from a friend of involved in regulating this (金融監督委員會 Financial Supervisory Commission). And after you finally spend enough efforts to make things work “properly” you’d basically end up duplicating the credit/debit card system. China made the method look successful and effortless because they can take shortcuts; for everyone else, just stick to cards, they are better in almost every way (if you get NFC working, which you should anyway).

[beaunative]

From what I've gathered from the news, China's regulators was never too concerned about Ant's role as a payment provider, but as a lender.

I don't doubt technical innovation would always be a burden for regulators and lawmakers, but that does not make it fit to say that such innovation are worthless, because they provide a value to the general public, and that should not be stopped because those in the power of authority needs to do more work to make it 'in control'.

Credit card wasn't invented because the lawmakers had drafted the perfect law, nor should mobile payment. The law always comes in afterward, as it should be.

[uranusjr]

I did not imply the innovation is worthless. That’s exactly how innovation should work, it is as valuable to prove something does not work as come up with something that does. But that value is only meaningful if others learn from that. In other words, the innovation of mobile payment is not worthless, but attempts to adopt it at this point would be.

[balola]

The big diffrence is debit card-based and credit card-based, Ant and Chinese banks take no responsibility of these one-off domestic transations and offer no consumer protection, while western banks need to worry about money-laundering and terrorism and risk management. WeChat Pay don't even offer customer support.

It's this special gated environment enabled payment tools, they just process this money and be done with it. Alipay & Wechat and Chinese banks don't care about what is your business doing are they shady or not, unlike Paypal.

[beaunative]

China's anti money-laundering law wasn't as strict as US's for sure, but that doesn't mean huge amount of cash flow from one or many accounts to another wouldn't draw red flags.

US banking system works that anyone can use the card even if they just found it on the street, and business owner can charge a card repeatedly for any amount even if the card owner is not present. The room for fraud is huge.

China's debit and credit card alike requires PIN code to send payment, where the owner would be required to confirm the number and enter the PIN code. And it has 2FA as a requirement for online banking, whether that's a text message received on a mobile phone, or a hardware 2FA. There is still room for fraud but a lot smaller.

To say US banks cares and Alipay, Wechat and Chinese banks don't care is kind of absurd. They exist in a almost entirely different financial ecosystem and norms. In the US, fraud protection is necessary otherwise no one would use their cards. While in China, fraud protection still needed, but rarely is the case. Those institutions only did what's necessary.

[glitchc]

I don’t believe this for a split second. I’m certain China cares if money being spent somehow harms the CCP. Their monitoring motivations are distinct from the west, but monitoring definitely exists.

[balola]

You don't have to, it's just the way banking is done in China, sounds ridiculous? Well, having banks blocking you transaction, and asking what it's for is it legitmate, or Paypal terminating accounts at will is ridiculous in China too, "it's my money none of your business". Also part of the reason why mobile games and micro-transation are so huge, there's no bank asking why are you spending repeatedly on Genshin Impact and do you want to take it back.

It's tied to your national ID for sure, but it stops there.

It's actually good for the CCP, coz corruption is lubricant and everybody is in it, you don't want to track who's behind this money, they don't even disclose how many dozen condos every official owns.

[octoberfranklin]

Maybe so. OP's point is that China doesn't force the banks to put burdens on their customers for the sake of this monitoring.

It's a big deal.

[glitchc]

What exactly is truly innovative about Alipay? What features are missing from the current Canadian payments landscape that you feel Alipay can fill? Just curious.

[justicezyx]

Nothing is new in Alipay.

They developed an database called oceanbase and thought it would replace IBM's machine and DB2 for banks, they failed miserably because of the deep transactional nature of conventional banking is not working well in their system designed for online payment processing.

That's a out it.

[hungryforcodes]

Sorry, but I'd LOVE to avoid all the "innovative" spying and one vendor lock in you seem to ignore in your enthusiasm.

[dmix]

It doesn't have to be like China.

But we've already got a oligopoly of sorts with in the financial system (in the US heavily reinforced by policy after the last 2008 recession down to 5 mega banks and thousands of smaller banks went under). So it will be more like corporate surveillance.

Which yes privacy laws can protect. Especially here in Canada.

It doesn't have to be that way if we had competent privacy rights protections.

Especially not the way WeChat and Alipay has been integrated with the Chinese government.

[hungryforcodes]

Yeah I'm not sure why I was down voted for that -- literally if you don't have these two "apps" (which the government monitors and censors), you can't function in modern Sino city life. Why we would want that in Canada is beyond me.

I agree with all your points.

[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.

[dmix]

To expand on your comment here’s a good article that explains Ant and how it’s structured plus it’s issues with Chinese regulators by an excellent Chinawatcher.

https://www.lowyinstitute.org/the-interpreter/many-trails-an...

[vmception]

Subscribed! I don't run into many people in the west that can have a nuanced view on what's happening in China and the place is just way too big and vibrant to deflect every topic into what's happening in one city or waaay on the other side of the Gobi desert. This doesn't happen on any other topic about any other country, and the other things going on are of keen interest to me.

[pushrax]

If the loan is actually written by another bank, why is there any requirement on Ant?

Though my position is that 30% capitalization is actually reasonable and that our current collective level of leverage is unnecessarily unstable.

[balola]

It's not, the banks lend their excessive cash to a big tech company, Ant then use that money to make small/short-term loans with "big data" credit ratings to individuals unqualified for low-interest bank loans.

[pushrax]

That makes sense. Though it seems like it should be inconsistent with "if the loan defaults, it's the partner bank's problem, not Ant's."

[whatok]

Your underwriting standards are going to be different depending on how much skin in the game you have.

[Klinky]

Why would partner banks accept trash loans without doing due diligence? Though thinking about the housing crisis, greedy short-sightedness comes to mind. It's amazing how some of the people who claim to be the smartest with money are actually the dumbest and riskiest. Are they actually smart or just lucky they won a bet?

[TearsInTheRain]

Governments have a history of bailing out the financial system. Lenders take that into account and will take on riskier loans since they effectively have a put on them.

[srtjstjsj]

Adding links to a chain makes it weaker, nor stronger.

[pbk1]

I don't think 30% is unreasonable, nor would it require them raising that much cash relative to a company of their magnitude or

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

[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

[robotresearcher]

Right, and it opened about 9% lower than yesterday's closing, recovering about 1% since then.