In the reports it published last week, Maimon Direct wrote that “in light of the deterioration in the payment behavior of the company’s customers” there was an “increase in the rate of credit losses, from approximately 1.67% in the corresponding period last year to approximately 2.98% in the third quarter of 2022.”
In this context of “the worsening of the payment ethics of the company’s customers”, the CFO of Direct Financing, Oren Shakdi, told “Globes” that “we think that the public is being burdened. He undertook mortgages and linked loans and also at prime interest rates. So the public returns much more money today. The increase in the loan burden is reflected in the credit losses.”
Shakedi forgot to mention another factor that burdens the public of direct financing customers, i.e. an unexpected increase in the prices of basic products and services. But that’s not the point. The point is that direct financing reports call a customer who falls behind on a payment or two, in the face of said overpayments, as a person of moral turpitude.
In direct financing, they probably forgot that the source of the expression “Payments is deferred” is the “Payments are forwarded to suppliers law, 2017-2017”, which aims to eradicate “the practice of deferring payments (by public bodies, including local authorities), which makes it especially difficult for small businesses and mediums who lack the financial ability to wait extended periods of time until receiving the payment.”
About a prosperous supermarket chain that regularly pays small suppliers after 180 days of receiving the products, even though it promised to pay regularly plus 60, it should and should be said that it is engaging in an immoral practice.
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But to say that there has been a “deterioration in payment ethics” of a small man who, in the face of burdensome macro conditions, is finding it difficult to meet the payments on a loan he took from a large corporation? Not pretty.
In the social networks (in contrast to the capital market sections in the mainstream media) there appeared quite a few complaints about the very unsuccessful choice of words of the members in direct financing. I especially liked the following tweet:
So, inspired by Yoav’s tweet, we will move the discussion of moral theory to the level of the relationship between direct financing and the capital market, from which it periodically raises funds to finance its activities.
According to Wikipedia, “the philosophy of morality deals with the questions of what is the proper act that must be done and what is the ‘good measure’, and helps distinguish between good and bad.”
Below I will argue that the decision of direct financing to the law on “depraved payment ethics”, instead of giving a quantitative disclosure about the extent of overdue loans (as is common among similar companies) is an immoral decision, which constitutes a bad act towards the public of small investors.
Let’s start with the following slide from the presentation that accompanied the third quarter reports of direct financing:
A loan portfolio of approximately NIS 5.4 billion currently sits on the balance sheet of Maimon Direct, but in addition to it, Maimon Direct manages the collection in another, larger portfolio, which contains loans that it removed from its balance sheet when it sold them to institutional investors and other large financial entities, such as a bank east.
Like direct funding, too Affirm The American company (which I wrote about here) sells to large entities loans that it made available to its customers on the “buy now pay later” platform, and like it, it continues to manage the collection for the buyers. And like direct financing, Efiram does not sell all the loans either; She continues to hold a significant portion of them until maturity. Here is a slide from Efiram’s presentation summarizing the results of the quarter that ended on September 30, 2022, which is the first quarter of FY2023 (because the fiscal year ends in June):
The slide shows (in the small rectangle) that the rate of loans in arrears over 30 days jumped from about 2% and a little on June 30 to a little less than 3% in September.
In response to an analyst’s question in the conference call summarizing the previous quarter’s results (transcript here), the CFO clarified that in this type of slide the arrears data always refers to both portfolios together, that is, to all loans in the portfolio on the balance sheet and the portfolio managed for others.
Of course, in the financial statements themselves, Affirm Gives a separate quantitative disclosure of the extent of arrears in the held portfolio. For example, the notes to the financial statements show that the rate of debts over 60 days in arrears rose to 2.25% on September 30 compared to 2% on June 30.
Why does the slide in the presentation to investors refer to both portfolios, and not just the portfolio on the balance sheet? There are two reasons. First, the purpose of the slide is to show trends in the rate of delinquency in loans taken by consumers on the platform of Affirm, regardless of whether or not they were sold to other entities after their placement. This is of course important information in itself (beyond the information presented in the financial statements about the scope of the backlog in the portfolio held for investment).
Second, and this is where the moral aspect comes in, the large entities that own the loan portfolios it sold Affirm Receive regular information on the extent of the backlog in these cases. So why not share some of this information with the public, thereby contributing to reducing the gaps between the information accessible to small investors and information accessible to large investment entities.
And it should be emphasized that information about arrears rates in the cases that Afram has sold is information that may be useful to a reasonable investor who is considering buying or selling a share AFRM. This is because it is possible to project from it what is happening in the case that Afram keeps on its balance sheet.
If you don’t believe it, ask Dan Dolev, senior fintech analyst atMizuho. From time to time, he issues a report to his clients, in which he reviews current arrears data in cases that –Affirm sale, and explains how they project his recommendations (buy, hold, sell, etc.) for the stock AFRM and how they affect the target price he assigns to the stock. See for example, here or here.
In its quarterly reports, our direct financing does not disclose useful information about delinquent debts. Quantitative disclosure about credit in arrears is given only in an annual report, and of course only in relation to loans “on the company’s balance sheet” (that is, not in loan files that have been removed from the balance sheet and on which it manages the collection).
Specifically, in the quarterly presentations of direct financing, in every slide similar to the next beautiful slide Ally Financial Incwhich presents arrears data in the vehicle sector as of 9/30/22:
And in the reports of direct financing there is absolutely no data of the type presented in the cold and dry disclosure you give Axis Auto Finance From Toronto in its reports:
It can therefore be said that in the “burdensome” conditions in which direct financing customers are trying to survive these days, failure to provide quarterly disclosure of the extent of overdue loans amounts to “impairing the morals of transparency” of direct financing. The deterioration in transparency occurred between the first quarter report and the second quarter report, and another deterioration occurred between the second quarter report and the third quarter report.
For the sake of fairness, and for the sake of the matter, it should be noted that next to the unfortunate statement about the “deterioration in the customers’ payment behavior”, direct financing states that “the loan portfolio at risk increased by about 36% in the third quarter of 2022, compared to the corresponding quarter last year”.
The reports do not explain how direct financing is defined as “loans at risk”, but those in the know who will conduct a textual search for the word “at risk” in the annual report, will read what is written around the third occurrence (out of three of this word), and will continue from there to the only occurrence of the phrase “stage b “, will understand that there is a reasonable chance that the term “loan at risk” refers to loans over 30 days in arrears.
But Direct Financing has never disclosed the absolute number of outstanding debts over 30 days in arrears, so it is not possible to translate the above disclosure into terms of a rate of debts over 30 days overdue, at one time or another, or into terms of an increase in said rate during this period or Other.
In any case, since the average loan portfolio of Direct Financing increased by more than 50% in the third quarter of 2022, compared to the corresponding quarter last year, a 36% increase in loans overdue by more than 30 days does not reflect “a deterioration in the payment behavior of the company’s customers”, but a benefit . Apparently, with direct financing, the phrase “dismissal of payments” refers to a delay of 60 days or 90 days.
And speaking of 60 days, in the pictures above you can see that at Ally Financial Inc American and Axis Auto Canadian, the increase in the rate of loans overdue by more than 60 days in the third quarter of 2022, compared to the corresponding quarter last year, was sharper than the increase in the rate of loans overdue by more than 30 days.
Apparently this is also the case with direct financing, but small investors, who cannot take a look at the loan portfolios that direct financing sold to large investors, cannot know.
Direct Funding published its third quarter reports on the morning of Monday, November 14th. “Globes”, wrote at the end of the day that “Although that the company concluded quarterly Third successful With Immigration in revenue the funding and profit The net, the investors reacted with concern and sent the stock down about 7.5% on Monday in Tel Aviv.”
The next day, Tuesday, November 15, there was no real change in the price of the stock, which returned to normal trading, so that on Wednesday morning it was possible to say that the market had effectively digested the information contained in the reports published on Monday, and read with ease in the printed De Marker, that “the day before yesterday”, That is, on Monday, “investors violently dropped the stock of Direct Financing… which posted good financial results for the third quarter.”
However, on Wednesday and Thursday the “violence” of the investors was renewed and brought down the stock by an additional 11%, and this time not in response to the third quarter reports, but in response to…, why actually?
B-S&P The world is concerned about the lack of transparency in foreign bank credit
By an intriguing coincidence, on the day that Direct Finance published its third quarter reports, a news article appeared in “Calcalist” entitled “Also inS&P are concerned about the lack of transparency in the off-bank credit.” The news reported that in a report it published a few days ago, the rating agency stated S&Pbecause she is “troubled by the growing share of non-bank credit, the level of supervision and transparency of which is lower than that of banks, and warns that this makes it difficult to evaluate the credit market in Israel.”
not sure thatS&P We know this, but among non-bank credit companies traded in Tel Aviv, the greater the chance that you will not provide a quantitative disclosure of the extent of debts in arrears. For example, the small Value Finance, with a market value of only 24 million NIS, gave the same disclosure for June 30, 2022, but Direct Financing with a market value of 2.4 billion NIS (last Sunday) did not give the same disclosure. to, not even for 30.9.22. What does this say about the work ethic in the authority charged with enforcing due disclosure in the reports of the traded companies?
The author, CPA Dr. Uri Ronan, is a co-founder of the due disclosure association – the movement for the protection of the investing public.