Funding Circle Said to Plan Europe's First Peer-to-Peer ABS

Funding Circle, a small-business lending platform, hired Deutsche Bank AG to arrange the first securitization of peer-to-peer loans in Europe, according to a person familiar with the matter.

The firm will meet investors in London April 18-20 to discuss a possible deal in pounds, said the person who isn’t authorized to speak publicly and asked not to be identified. Officials at Deutsche Bank and Funding Circle declined to comment on the transaction.

Peer-to-peer, or marketplace, financing is surging as banks reduce lending and investors seek higher returns. Such loans in the U.K. -- Europe’s largest market -- will reach 15 billion pounds ($21 billion) a year by 2020, a 10-fold increase from 2014, according to Morgan Stanley.

The planned deal is an exercise in “price discovery for what is an esoteric asset class which has been lacking in Europe,” said Aaron Baker, a London-based credit analyst at Banco Bilbao Vizcaya Argentaria SA. “I would expect more transactions to come with U.K. collateral.”

Booming peer-to-peer lending platforms are drawing attention from investment bankers seeking new types of debt to spur issuance of asset-backed securities. By packaging the loans into bonds, Europe’s banks can earn money from a market that was set up to bypass them.

The first securitization of peer-to-peer consumer loans in the U.S. was issued in 2013.

Funding Circle has channeled more than $2 billion of loans from individual and institutional investors to businesses in the U.S., U.K. and Europe since 2010, according to its website. The company is part of the growing ecosystem of online lending that evolved as banks curtailed their role in the distribution of credit after the financial crisis.

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