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Just in time before Christmas: $50bn fraud

That’s the size of losses estimated by Bernie Madoff, who was just arrested.

Some say it might be less, like $20bn.

So much for “hedge funds are going down with dignity” (FT column a week ago):

In an awful year for everyone, hedge funds have remained a beacon of free market principles. It is small comfort, but it is something.

One amazing detail is that regulator was informed a decade ago that Madoff is running a giant Ponzi scheme:

A wrinkle in the case is the complaint dating back nine years to the SEC by a securities industry executive named Harry Markopolos. He contacted the agency’s Boston office in May 1999, telling SEC staff they should investigate Madoff because it was impossible for the kind of profit he was making to have been gained legally.

First Posche, now this. Not a good month for hedge funds.

Banks collapsing, dominos falling ever closer to Poland

In Russia when they were explaining to me why people didn’t trust banks so much (topic was triggered by the low volumes of deposits in commercial privately owned banks) they said: “there’s been a banking crisis every two years, what would you expect. People are afraid that the bank can come down and take their savings with it”.

(fot. rosendahl@flickr)

I kind of took it in as a valid explanation but never fully internalized the notion – in Poland, when selecting a bank, hardly anyone actually considers whether it’s gonna go bankrupt or not. You never hear banks falling in Poland, except for some obscure “pocket banks” in the distant past of the early days of the market economy.

Even with the lest prestigious and smallest banks, trust used not to be really the major decision factor.

Maybe that is going to change soon. Just in (

Investors wondered who would be the next candidates for bankruptcy. Commerzbank, owner of the Polish BRE Group, fell almost 23 percent on the Frankfurt stock exchange. Trading of UniCredit (strategic shareholder of Pekao) was suspended altogether on the Milan stock exchange, after they fell 9%.

In December 2007 I quoted this passage I found in FT:

(…) two giant and interlinked bubbles burst simultaneously – one in property, one in credit – leaving banks and investors on the brink of bankruptcy, some hanging on by their fingertips

That was before the balls started to drop, and the mood was cautiously optimistic then.

It sure feels like something similar with regards to banking situation in Poland right now. Things are falling apart abroad, but at home everything is supposed to be in order, except for the performance of investment funds, which keep looking for the bottom – but this is generally accepted as an isolated and contained phenomenon.

Looking into the future of Polish financial sector in the next 6 to 12 months, maybe it’s time now to calculate in some turbulence.

Report: social lending in Poland

Report from our research on social lending in Poland is now publicly available.

You can download it from Gemius webpage:

English version of the report

Polish version of the report

The research was an idea I had after February Bootstrap meeting devoted to social lending. Initially I thought of writing a simple article, but then decided that it would be cool to have some original primary data. So I asked Gemius (leading Internet research agency in Poland) to participate, and then involved Accenture as well.

Below a couple of comments and slides from the report. (read more…)

Now Provident accuses social lending sites of unfair competition

See article in Gazeta Prawna. Provident, provider of home-delivered and rather pricey cash loans, accuses Monetto, a social lending startup, of unfair comparison of interest rates on its loans.

If Provident’s goal was to give social lending additional publicity, then it greatly succeeded. Average reader will remember from the article that you can get cheap loans on the Internet and that Provident is expensive and therefore afraid of social lending sites.

Fortunately for Provident, Gazeta Prawna is probably read by a tiny percentage of their target customer base.

Kokos will cooperate with Allegro

Kokos, one of the social lending sites in Poland, announced that it started cooperation with Allegro, the dominant online auction player (through antyweb).

According to the research that we did (Accenture and Gemius), this is a rather promising idea for Kokos – Allegro is the top site that potential borrowers actively use (i.e. visit at least once a week):

(there is similar data for potential investors, among which Nasza Klasa has better penetration)

The full report will be public shortly, also in an English version.

Monetto partners with Nasza Klasa, should they go with Goldenline instead?

More recent post: Nasza klasa and facebook

Monetto was kind enough to send me their press release, announcing partnership that they concluded with Nasza Klasa (Polish equivalent of classmates, but more of a Facebook phenomenon in terms of popularity).

Not that I could do anything with the material while in the Ukraine, but still a point for their PR.

One curious thing is the homepage screen shot they attached to the press release.

20082008 Monetto homepage.jpg

Some static elements are evidently in a “draft” state at the moment, and it’s not clear if the core functionality (transactions) has the same status. Placeholder for press snippets shows that Monetto has really high hopes. Folks at bankier should take note.

20080205 Monetto napisaonas.gif

Back to the main point. From the press I understood that:

  • Monetto signed letter of intention with Nasza Klasa regarding the partnership, which will work as the following (in my understanding) –
  • Users of Nasza Klasa will be able to “confirm” their profile using Monetto capabilities (more info on blog entry: “test” money transfer and sending ID scans by email)
  • Additionally, NK user will be able to indicate on his profile that he wants lend/borrow money
  • Nasza Klasa hopes that it will improve credibility of the service (validation of profiles) and reduce problem of fake profiles
  • Monetto hopes that users redirected from Nasza Klasa will in part get interested in P2P lending and use its intermediation
  • The actual contract between two sites has not been signed yet

Meanwhile the release was picked by Gazeta Wyborcza, which reprinted it, without hesitating to spin the point about raising Nasza Klasa credibility to describe it as a site which “more and more often raises mixed feelings”. Get over it, Gazeta.

But in the end they comment that the deal has a high potential for both sites and can harm competitors a lot and especially

My first thoughts on the deal below.

(read more…)

P2P lending on bootstrap – notes

Between burger and an ice cream in Hard Rock Cafe I jotted down notes from today’s bootstrap. I needed them in electronic form anyway. I wrote down stuff which seemed useful for me, so it’s not guaranteed to be complete.

This time it was in an unusual for boostrap form of a panel. Meeting took 3 hours, but I found it very interesting. Technical people might beg to differ, though, as tax/legal discussion was really exhaustive (exhausting).

I made some comments below in the notes, but here I can also share my “first impression” of the P2P lenders present. It is really first impression because I didn’t bother to check them myself, so some doubts below might be result of this.

  • Finansowo – approach to start as simple as possible, no collections or support in executing transactions between peers. The biggest risk is that some things that they ignore seem critical (collections).

  • Monetto (blog)- most advanced approach, ensured partners from the beginning, including bank (mBank) and collectors. The biggest risk is that they start with a very complicated machine that no-one will use.

  • Kokos – midway between the two, with the advantage that it is already up and running.

On a first glance I like Finansowo and Monetto, because they follow clear-cut concepts of simplicity and exhaustiveness, while Kokos was less clear, at least as much can be judged from the presentation, and also takes cautious approach regarding some legal challenges (e.g. possibility to grant anonymity and stick to electronic contract form).

(read more…)


I have this rather large file with loan data and I’m playing some statistics on it. During the day it was standard pivoting. But now in the evening I decided to check whether I can get anything by a fancy black-box clustering.

The best thing to get, of course, would be a set of clusters with significantly different loan performance (i.e. share of bad loans) that the others.

I’m using Cluto.

It is not particularly user-friendly. It requires input files that I need to kind of manually generate from Access and then fine-tune. And it is not excel add-in, but a command line program. But thanks to this it can handle my 100k records (my Excel version has 64k rows limit).

So far no results. But wait… just finished computing using the graph method. It took 17 minutes.

Nope. At the moment most distinctive cluster is ca. 6.5% better that the average in case of defaults. And ca. 11% in case of defaults considered fraud. I’m not impressed.

Guess they need to give me more data from the application. Currently I test on 6 variables and some are loan and not customer related so there is a field for improvement.

Or maybe I should read the manual some more and figure what what are the different optimization methods.

“So the message from last week is that central banks have no game plan”

Comment in FT by Wolfgang Münchau:

It is a fully fledged solvency crisis that has arisen because two giant and interlinked bubbles burst simultaneously – one in property, one in credit – leaving banks and investors on the brink of bankruptcy, some hanging on by their fingertips. Yet there is nothing the central banks are offering at this stage to alleviate a solvency crisis.

Sounds rather dramatic – “some hanging on by their fingertips” – doesn’t it. Maybe we are currently going towards the edge macro-wise and we only start to realize.

Not a nice scenario: run on Internet banks

There is an interesting article by Anna Lach in Bank (I read it through onet though), presenting a possibility of a run on Internet banks.

Note that probability of such event is very low currently: all Internet banks in Poland belong to strong financial groups, and Polish banking sector in general is healthy and boasts record profits.

However, the scenario in which people are able to withdraw their funds by doing a few clicks (instead of crowding in front of the branches) based on a rumor – and rumors can now circulate faster thanks to also Internet – is quite scary. Also, deposit accounts of Internet banks have usually very liberal conditions of withdrawing the funds before maturity.

Paper checks

Today I was reading a blog post by Cedric Otaku, who lives in the US.

He had his new checks stolen from his mailbox (because he was too lazy to pick them up in the morning, but it’s a side issue) and described his experience with Wells Fargo when he tried to revoke them. Turned out that, according to the bank, he was supposed to close his account altogether in order to prevent fraud. That’s because checks come with data on them which allows to generate fraudulent operation, even if the check itself had been revoked.

What’s interesting is not the Wells Fargo level of service, but how different the payment infrastructure is in the US compared to, say, Poland. The whole business of paper checks with all its aspects mentioned in the comments (I’m not an expert in checks, caveat lector) – lack of signature validation, manual processing, triviality of fraud – seems incredible mess from the perspective of country where electronic money transfers are so prevalent.

Credit society

Overdue remarks on last week’s events.

Opening of the Consumer Finance Congress. I expected the event to be in a practical mood, quite ordinary money making topic, as it is usually considered. But no, I was caught surprised by the lofty wrapper to the subject in the introduction speech. We are apparently on a way heading to ?credit society?, a higher form of society than the one we have at the moment, even though the term itself is somehow fuzzy for me. But it feels like prevalence of credit in the daily lives is what it?s all about.

Some optimistic statements followed, regarding the positive impact of the new society on the economy and general well-being. The credit impacts the economy positively mostly in a way of increasing demand, at least that was what I understood to be the main assumption.

After this promising start there was a bit of backtracking from the industry participants, probably not used to thinking about their craft in such an elevated manner. Some even joked about the ?on the way to credit society? thing, comparing it to some slogans from times of the other economic system and the other society that we were supposed to be approaching.

Nevertheless, there are some interesting questions and as usual I regret I have no time to follow them, like, how exactly is the higher amount of credit impacting the economy (increasing the demand, fine, but first thought ? increasing also the amplitude in the economic cycles?), to what extent it is positive, what difference does having ?credit culture? make when you look at the overall structure of the economy, etc.

Btw, one thing about the ?credit culture? topic ? of course there were examples of US and UK ? but what I was thinking about, why the anglo consumers are so eager to get in debt, while the companies there seem highly averse to be leveraged. Elsewhere, it seems exactly the opposite.

EFG Eurobank launch in Poland (as Polbank EFG)

It turned out that the construction taking place on the opposite site of the street where I live will soon be a new outlet of the EFG Eurobank, operating under “Polbank EFG” brand in Poland; Eurobank name is already occupied. Greeks are reported to open up to 200 branches. “Now there is a construction here but soon…”:

Polbank EFG (EFG Eurobank) Poland

Getin’s Open Finance is already there, just next doors. In the area where I work you can find three branches belonging to Getin holding, distributed every 50 meters, two of them Open Finance “independent” advisors:

Getin Open Finance Warsaw Poland

No need for a consultant to say that it’s getting crowded in here.

Update: Now there’s also Polbank’s logo.

Eurobank, Polbank EFG logo

Final update: Polbank opened its Call Center (Polbank24) and first branches in Warsaw:

Polbank EFG, Plac Zbawiciela

Bank will open 15 branches in Katowice, Poznan, and Warsaw till till the end of February; can’t tell if this number includes the first 4 outlets. However, a total of 50 should be open by the end of the year. Polbank is reported to create 500 jobs in 2006.

The offering includes Consumer Finance products, as well as loans for small enterprises. Of interest is a micro-loan up to 1,000 PLN, available with no formal income statement required. I find it an interesting idea to build the initial customer base rapidly.

First day of operations was glitchy; Puls Biznesu reported it required 1 hour 14 minute for the first client to open an account and get a loan.

Bank’s CEO, Kazimierz Stańczak is a former partner at McKinsey&Company.