News

May 10th 2016, Daily News Digest

  • Lending Club’s financial results: profitable, 68% y-o-y origination growth, 87% y-o-y revenue increase. What else do you need ?
  • Retail p2p lending to the SME space is starting.
  • Greg Lippmann, ‘Big Short’ trader, deploying capital in marketplace lending.
  • Finance startup SoFi takes a surprisingly traditional turn.
  • A parallel between marketplace lending and the BDC (=the REITs of SME lending) market.
  • The rising scene of online lending associations.

 

Lending Club’s financial results for 1Q2016, (Wall Street Journal), Rated: AAA

In its 2016 first-quarter results announced Monday, Lending Club had a GAAP profit of $4.1 million, versus a non-GAAP profit of $20.9 million.

In each of the last two years, LendingClub has recorded losses under GAAP — $5 million in 2015, $32.9 million in 2014—that became non-GAAP profits once stock compensation to employees and other costs were stripped out.

Originations – Loan originations in the first quarter of 2016 were $2.75 billion, compared to $1.64 billion in the same period last year, an increase of 68% year-over-year. The Lending Club platform has now facilitated nearly $19 billion in loans since inception.

Operating Revenue – Operating revenue in the first quarter of 2016 was $151.3 million, compared to $81.0 million in the same period last year, an increase of 87% year-over-year. Operating revenue as a percent of originations, or revenue yield, was 5.50% in the first quarter, up from 4.95% in the same period last year.

Adjusted EBITDA – Adjusted EBITDA was $25.2 million in the first quarter of 2016, compared to $10.6 million in the same period last year. As a percent of operating revenue, adjusted EBITDA margin was 16.7% in the first quarter of 2016, up from 13.1% in the same period last year.

Net Income (Loss) – GAAP net income was $4.1 million for the first quarter of 2016, compared to net loss of $6.4 million in the same period last year. GAAP net income included $15.0 million of stock-based compensation expense in the first quarter of 2016, compared to $11.6 million in the same period last year

LendingClub enjoys “network effects,” from its brand and track record, meaning that borrowers will seek it out even if it doesn’t offer the highest rates and investors will keep buying loans because they believe they will outperform relative to equivalents elsewhere.

Mr. Laplanche had also previously said that the company hasn’t seen any economic slowdown affecting borrowers. But in a recent update for investors, LendingClub said returns were under pressure for that reason.

Truepillars first to let retail investors lend to business, (The Sydney Morning Herald), Rated: AAA

Truepillars has became the first Australian P2P lender to allow mum and dad investors to lend directly to business.
Investors will be able to lend as little as $50 via Truepillars, while businesses will be able to borrow between $15,000 and $250,000.
The highest rated businesses will likely be charged between 9 and 14 per cent, the lowest from 14 per cent to 20 per cent.

 

VPC Specialty Lending Updates on Q1 Performance, (Crowdfund Insider), Rated: A

VPC Specialty Lending Investments PLC reported that during the first quarter of 2016, the Company’s returns have been “somewhat muted” despite credit performance of the portfolio as a whole continuing to meet VPC’s expectations. VPC stated the lower returns were due to various factors that management viewed as “temporary.”

During Q1 of 2016, VPC closed three new investments.  These included an equity investment in a lender that offers point of sale financing.  In February VPC closed a small investment in convertible notes issued by a digital insurance manager. In March, VPC made an initial investment regarding a $100 million credit facility to a provider of auto title loans in the US.

Greg Lippmann, ‘Big Short’ Trader, Wants to Finance Your Wedding, (Bloomberg), Rated: AAA

Greg Lippmann, made famous for amassing a fortune by betting against subprime mortgages in the run-up to the financial crisis, is now wagering on a different kind of finance: wedding loans.

Lippmann’s hedge-fund firm LibreMax Capital LLC has agreed to buy loans made by Promise Financial.

The Hoboken, New Jersey-based startup, which has raised $4 million in equity, is still in early growth stages and will likely have another funding round in three to six months. It has made around $7 million in loans since launching in June 2015, and has scraped together some $100 million in funding agreements from various investors, including high-net worth individuals and other private-investment firms, the founders said.

Square Lends $153 Million in Q1 During Challenging Credit Market Conditions, (Crwodfund Insider), Rated: A

As for the credit side of the business, Square Capital generated $153 million in loans and advances. The amount of capital extended tripled year over year, yet the markets were quite harsh on Square – so what gives?

Square directly connects with borrowers at the point of sale and thus not only makes it incredibly simple to borrower money – they also have access to borrower sales numbers.  This is something Square’s CFO Sarah Friar aptly pointed out during the conference call with analysts.

Square co-founder and CEO Jack Dorsey delivered disappointing numbers as the first quarter loss jumped to $98 million up from the year prior number of a $48 million loss. The top line numbers for Square came in with gross payment volume of $10.3 billion, a 45% year over year increase.  Total net revenue for Q1 was $379 million – a 51% increase versus year prior quarter.

European real-money buyers cautious on marketplace lending ABS, (Reuters), Rated: A

Funding Circles’  £129.2m SBOLT transaction priced on April 29 after more than a year in the works.

Demand was particularly lacklustre for SBOLT’s mezzanine tranches, with the spread on the Class D notes pushed a full 125bp wider than earlier price talk. And while the deal’s all-important £87.8m senior tranche closed oversubscribed, it was supported by a £50m protected order that was pre-sold before the deal was publicly announced.

The landmark deal met with more resistance in the public market, where some fund managers worried it may be too small and illiquid – factors that are less important for buy-and-hold public sector investors.

Moody’s: Lending Club class action case is credit negative for marketplace loan ABS, (Moody’s), Rated: A

A proposed class action against LendingClub Corporation is credit negative for asset-backed securities (ABS) backed by consumer loans originated through online platforms using a partner bank origination model, Moody’s Investors Service says in a new report. The lawsuit confirms that the owners of such loans face legal challenges over whether the loans are exempt from state usury limits.

Bethune vs LendingClub Corporation et al. was filed in the US District Court for the Southern District of New York on 6 April. Lending Club loans have not backed any Moody’s-rated ABS.

But if an adverse legal outcome jeopardizes the viability of an online lending platform, the platform may not be able to service loans or repurchase those that breach its representations and warranties. Effective back-up servicing arrangements would limit servicing disruptions in such a scenario, Moody’s says, and the consumer marketplace loan ABS it has rated to date include back-up arrangements with experienced servicers.

Aussie fintech lenders nervously watch faltering US pioneers, (Sydney Morning Herald), Rated: A

Bank analyst, Martin North, who focuses on the small business lending market, does not think there is anything fundamentally wrong with the new lenders’ business model, and says the situation in the US is different to Australia because a lot more competition has emerged there.

RateSetter Australia chief Daniel Foggo argued the marketplace lenders had moved heavily into getting their funding from institutional investors, but were now moving back to their roots taking funds from retail investors, which is the main source of RateSetter’s lenders.

Finance startup SoFi takes a surprisingly traditional turn, (San Francisco Chronicle), Rated: AAA

Better known as SoFi, the company “bills itself as a nontraditional lender, someone who is kind of breaking the mold in terms of traditional underwriting,” said Guy Cecala, publisher of Inside Mortgage Finance. But Fannie Mae loans are “anything but nontraditional. There are capital requirements, they must meet certain characteristics. It’s also the most competitive and most commodity-like” mortgage out there.

The news that SoFi will be a “seller and servicer” of Fannie Mae loans comes at a time when some marketplace lenders are having a harder time finding investors to fund their loans.

SoFi funded $5.2 billion worth of loans last year and $2.5 billion so far this year.

It now refinances student, alumni and parent loans at 2,200 schools. College debt still makes up 50 to 60 percent of its loan volume. Mortgages account for 15 percent and personal loans make up the rest, said Michael Tannenbaum, SoFi’s vice president of mortgages.

Most of its mortgages are jumbo loans, meaning those too big to be sold to Fannie Mae or Freddie Mac. Those government-chartered companies can buy and insure loans up to $417,000 in most parts of the country. In most Bay Area counties, the limit is $625,500.

“Our average loan about is $800,000,” Tannenbaum said. About 65 percent of its mortgages were made in California. About 70 percent were to purchase (as opposed to refinance) homes and about 65 percent of those were to first-time buyers.

As SoFi expands into lower-cost markets such as Seattle, Texas and Chicago, it’s finding demand for smaller, Fannie-size loans.

In January, SoFi announced that it would no longer use FICO scores to qualify borrowers for loans. Instead, it relies on their employment history, debt-payment record and monthly cash flow. Fannie Mae, however, does require FICO scores. SoFi will put its Fannie Mae loans through the system, but will price them based on its own “free cash flow” model rather than FICO scores.

Tannenbaum said finding capital is not a problem for SoFi. “We have raised over $1.4 billion in equity, we also have warehouse lines (of credit). Fannie Mae itself is a funding source,” he said. “We’ve had relationships since 2013 with institutional buyers” including banks, insurance companies and asset managers. He said the company sold $50 million in jumbo loans just last week.

“I wouldn’t say SoFi is having trouble,” she said. Getting direct access to Fannie Mae “is a reasonably meaningful accomplishment for them. It legitimizes their mortgage platform” and “adds a more stable access to capital.” It also gives them a “full product set to offer customers.”

As Lending Club Stumbles, Its Entire Industry Faces Skepticism, ( New York Times), Rated: A

The problems at Lending Club, in particular, threaten to confirm some of Wall Street’s worst fears: that as favorable economic conditions begin to turn, they will reveal many upstart companies with weak internal controls that have been feeding inaccurate information to starry-eyed investors.

Just months ago, it seemed marketplace lenders couldn’t churn out loans fast enough. Investors like hedge funds, insurance companies and pension funds were clamoring to buy large pools of these loans, which offered an attractive return at a time of record low interest rates.

“Investors are shooting first and asking questions later,” said Christopher C. Brendler, a financial analyst at Stifel, the investment bank.

Some analysts predict that if the funding pressure continues, large banks could end up acquiring the marketplace lenders, or pieces of them.

“They have good technology and it could ultimately be adopted by the banks themselves,” said Todd H. Baker, founder of Broadmoor Consulting, which advises financial services companies.

LendingClub’s Woes Show Cracks In The Non-Bank Boom That Emerged From The Financial Crisis, (Forbes), Rated:AAA

Besides marketplace lending, other publicly traded lending vehicles like so-called business development companies (BDCs), which lend money to small businesses and mid-market private equity buyout deals, are exhibiting similar problems.

From 2008 to 2015, assets in the BDC business more than doubled. The problem is that after attracting tens of billions in capital, firms across the industry raced each other to deploy their funds at a time of record-low rates and unprecedented competition for borrowers.

Now that interest rates are rising and business credit performance is beginning to peak, many of the biggest and fastest-growing firms in the BDC sector are reportinghigher-than-expected lending losses, eating deep into investors’ capital. Worse yet, as FORBES has reported, the heads-I-win-tails-you-lose fees of many BDCs like Fifth Street may have incented reckless lending. Having lost investor trust, the BDC industry is broadly locked out of capital markets and constrained from lending. This boom is looking like a bust, even before the economy sours.

Mortgage REITs, a similar construct to BDCs in the market for residential mortgage backed securities, are also suffering investor alignment issues. They have an added problem of an absence of liquidity in some important short-term funding markets, which intensifies during sharp downdrafts like January 2016.

This woeful performance across the non-bank competition comes at a time when the real banking inside large banks is performing just fine.

What’s behind the rise of online lending associations?, (Now associations), Rated: AAA

Since the end of March 2016, three separate industry groups have launched—the Coalition for Responsible Business Finance (CRBF), the Marketplace Lending Association (MLA), and the newest, the Innovative Lending Platform Association(ILPA). Each has a similar focus on online lending for small businesses.

(And that isn’t all: The Responsible Business Lending Coalition, a fourth group in the same space, got its start last year. And the Online Lenders Alliance has been around for years.)

So what’s driving the sudden interest? Basically, it’s the Consumer Financial Protection Bureau (CFPB), the watchdog federal agency brought to life by the Dodd-Frank act in 2010. Last month, the bureau hired its first assistant director for the Office of Small Business Lending Markets, and the month before that, it began taking consumer complaints about online lenders.

Fintech lender completes major capital raising, (Australian Broker), Rated: A

Marketplace lender SocietyOne has announced the successful capital raising of a Series C of an additional $25 million to support the company’s ambitious growth plans.

According to the marketplace lender, the Series C capital raising attracted strong support from the company’s primary shareholders including Australian Capital Equity, Consolidated Press Holdings, News Corporation Australia, Seven West Media and Westpac Banking Corporation’s Reinventure Fund.

In addition, two new institutional shareholders have joined the share register as a part of the equity raising. They are G&C Mutual Bank and the Maritime, Mining and Power Credit Union. Both institutions are also funding investors of SocietyOne’s loans to its borrower customers.

Loans to customers have risen from $1 million to $10 million over six quarters to June 2014 and then from $10 million to $100 million over seven quarters to April this year. Growth in the quarter to March 2016 alone was $30 million.

Lending Club downgraded by several analysts after CEO resignation, (Market Watch), Rated: A

Analysts said their concern lies with the ability of the company to obtain future funding.

Linked Finance is looking to lend €250m to 5000 Irish businesses, (Business World), Rated: B

Linked Finance have launched a new fixed-rate loan product in a bid to help local SMEs.

All loans on the Linked Finance platform have followed the same format to date. A live, 2-week auction that sees members of the public bid to give businesses the funds they need. Lenders contribute various amounts at interest rates of between 5% and 15%.

JM Financial subsidiary invests in P2P lender Faircent, (Live Mint), Rated: A

Mumbai: Financial services firm JM Financial Ltd on Tuesday informed the stock exchanges that its subsidiary JM Financial Products Ltd has acquired 9.84% stake in peer-to-peer (P2P) lending start-up Fairassets Technologies India Pvt. Ltd.

The firm earns revenues by charging a one-time listing fee from borrowers and lenders. According to an Economic Times report in February, the firm’s platform facilitates loans of around Rs.1 crore a month and has over 20,000 registered borrowers and lenders.

Author: George Popescu

George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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