News

May 18th 2016, Daily News Digest

US

  • Lending Club stock soars.
  • Marketplace lenders reimagine themselves as broader financial outfits.
  • Lending Club may increase interest rates paid to investors to bring back investors. In the meantime, it raised executive salaries.
  • New York financial regulators subpoena Lending Club data, unrelated to latest events.
  • Prosper meeting with Fortress about capital injections.
  • OnDeck announces successful $250m securitization.

UK

  • Isle of Man introduced legislation to regulate crowdfunding and p2p lending.

China

  • Banks resume online payments services for p2p lending.

United States

LendingClub (LC) Stock Soars Despite New Subpoena, (TheStreet), Rated: AAA

LendingClub  (LC) stock is rising 10.83% to $3.99 in mid-afternoon trading on Wednesday despite an investigation into its business practices by New York’s top financial regulator, sources told the Wall Street Journal. 

For online lenders, it’s suddenly touch-and-go, (Tech Crunch), Rated: A

When SoFi raised a whopping $1 billion from Softbank last year, CEO Michael Cagney told Bloomberg: “I’m looking at over $1 trillion of market cap from the banks, and I think it’s all vulnerable.”

In an SEC filing yesterday, Lending Club, which announced the surprise departure of its founder and CEO last Monday, revealed that investors who “contributed a significant amount of funding” for loans are now examining that performance “or are otherwise reluctant to invest.”

That’s a huge problem. Lending Club can’t originate a loan until it has sold it to another party.

For many casual observers in Silicon Valley, the first signs of trouble in the online lending category emerged in late April, when the WSJ reported that Avant made $514 million worth of new loans in the U.S. in the first quarter, a 27 percent drop from the fourth quarter of 2015. Then, two weeks ago, Prosper confirmed that it planned to cut roughly 28 percent of its staff in response to falling loan volume. And Prosper’s news came just a day after OnDeck Capital said its own first-quarter losses had more than doubled as demand for its loans began to nosedive.

The government seems interested in ensuring that online marketplace lenders expand beyond serving prime and near-prime consumer borrowers to those who are “creditworthy, but may not be scoreable under traditional credit scoring models.”

“Wall Street walks when it gets  nervous,” says Baker.

Prosper, which has raised $355 million from investors and was valued at $1.9 billion as of April 2015; SoFi, which has raised roughly $1.4 billion altogether at an implied valuation of between $3 billion and $5 billion; and Avant, which has raised $654 million at a valuation north of $1 billion — suddenly look like long shots as upcoming IPO candidates.

In fact, consolidation in the industry, where other still-private players include Kabbage,Funding Circle, Earnest, Affirm and CommonBond (among dozens of others), now seems all but inevitable.

Smartly, some players are already looking to reimagine themselves as broader financial outfits. For example, SoFi, which began as a way for students from top universities to refinance their debt, has since branched into personal loans, wealth management, and mortgages. It also said last month that it’s hoping to drum up more investor demand for the debt it originates by starting a hedge fund that will buy its own loans.

Baker expects that to survive and thrive, more online lenders may need to remodel themselves into the institutions they vowed to replace, either by becoming banks, buying or selling to banks, or else striking up partnerships with banks.

LendingClub Tumbles After Investors Suspend Debt Purchases, (Bloomberg), Rated: AAA

The stock tumbled 11 percent to $3.52 at 1:23 p.m. following a regulatory filing from the company late Monday that said strategies to restore investor confidence and obtain new capital for loans might include equity or debt sales, fee changes or other moves that could be “costly or dilutive” to shareholders.

The Justice Department sent a grand jury subpoena seeking information, and the Securities and Exchange Commission is examining what happened, LendingClub wrote, saying that it plans to cooperate. “While the investigation is still in its early stages, the company is pleased with the open and positive interactions that have occurred to date,” LendingClub said in a separate statement Tuesday.

Higher interest rates might be needed to bring back investors, “which may serve to erode the company’s margins in the near term but may be necessary to get the company back on track,” BTIG analysts including Mark Palmer and Giuliano Bologna wrote in a note to clients. Management has to re-instill confidence in LendingClub’s platform “while the company contends with a legal overhang,” they wrote.

LendingClub hired an adviser to look back through its loans. A review of debt sold in the two years through March 31 found that 99.99 percent showed no unexpected changes, aside from the $3 million of loans at issue, the company said.

The scandal hurt LendingClub’s ability to hold onto some of its key personnel. To retain managers and attract new ones, the company said it will need to boost pay packages.
Details of some of those arrangements were disclosed Monday: Acting CEO Scott Sanborn received a grant of restricted stock valued at $5 million and his salary was increased to $500,000. Chief Financial Officer Carrie Dolan received $3.5 million of restricted stock units and her salary was increased to $400,000. Both executives also received $500,000 cash awards that will pay out in a year.

New York’s Financial Regulator Subpoenas LendingClub (Wall Street Journal), Rated: AAA

New York’s top financial regulator launched an inquiry into the business practices of LendingClub Corp on Wednesday, according to a person familiar with the matter, the third investigation the online lender has faced since its chief executive and founder was forced to resign earlier this month.

The New York Department of Financial Services sent the company a subpoena asking for information on the interest rates, fees, and duration and volume of loans made to New Yorkers, among other things, this person said.

The probe is unrelated to the events that led to former CEO Renaud Laplanche’s ouster earlier this month, this person said. Rather, DFS’s inquiry is broader and more interested in determining how LendingClub’s business affects New York consumers.

In addition to the information on interest rates and fees, DFS asked for details on underwriting procedures, how the company complies with fair-lending and other consumer protection laws, and a variety of other business matters, this person said. The DFS is also seeking information about LendingClub’s New York operations that date back to 2013.

Prosper Said to Meet Fortress, Others About Capital Injections, (Bloomberg), Rated: AAA

Prosper Marketplace Inc. has met with investors including Fortress Investment Group about potential capital injections, according to a person with knowledge of the matter.

Prosper’s conversations with Fortress and others are preliminary, and may not lead to a deal, said the person who asked not to be identified because the matter is not public.

OnDeck Announces Closing of $250 Million Securitization, (PR Newswire), Rated: AAA

OnDeck® (NYSE:  ONDK), the leader in online lending for small business, announced today the closing of $250 million initial principal amount of Series 2016-1 Fixed Rate Asset-Backed Notes (the “Notes”) in a private asset-backed securitization transaction.

The Notes were issued in two classes consisting of $211.5 million initial principal amount of Class A Notes and $38.5 million initial principal amount of Class B Notes. The Notes were priced with an annual yield to expected maturity of 4.250% for the Class A Notes and 7.754% for the Class B Notes. The Notes were rated at the closing by both Standard & Poor’s Ratings Services and DBRS, Inc. The Notes have a final legal maturity of May 2020.

To date, the Company has deployed over $4 billion to more than 50,000 customers in 700 different industries across the United States, Canada, and Australia. OnDeck has an A+ rating with the Better Business Bureau.

GDR: Using Technology to Crack the ‘Trust But Verify’ Challenge in Marketplace Lending, (FINalternatives), Rated: A

Global Debt Registry (‘GDR’) focuses on developing technology that helps investors better manage the investment risks associated with marketplace and consumer lending. We style ourselves as a “CarFax for Investors” in the loan space, providing a new suite of independent asset certainty products, anchored on loan validation, that address real-time problems such as disbursement verification, double pledging of loans, etc. Our role is independently validating that the people behind a loan actually exist, that the funds were actually disbursed to them, etc.

Our origins are in validating charged off receivables – i.e. debt, when sold into the secondary market. We are the only firm of our type to be on the VISA Global Registry of Service Providers, and are certified PCI-DSS compliant, which is a very high bar of protecting personal information.

LendingClub now targeted in shareholder lawsuit, ( Business Insider), Rated: A

Comment: this type of lawsuits are common when a stock loses value and Lending Club was already facing a few such suits in January , Feb and March.

In a complaint filed late Monday in San Francisco federal court, the plaintiff Steeve Evellard said LendingClub misled shareholders into believing its internal controls were strong enough to stop questionable lending practices and ensure proper disclosures to customers.

The complaint said shares plunged as the truth became known, including a 51 percent slide last week, wiping out several billion dollars of the San Francisco-based company’s market value.

Laplanche and Chief Financial Officer Carrie Dolan are also defendants in the lawsuit. The case is Evellard v LendingClub Corp et al, U.S. District Court, Northern District of California, No. 16-02627.

Bizfi Founder Sheinbaum Comments on $144M Small Business Financing, Notes Record-Breaking Q1, (Crowdfund Insider), Rated: A

Bizfi, a FinTech platform that combines aggregation, funding and a marketplace for small businesses, announced its origination of more than $144M in financing to 3,605 small businesses in the first quarter of 2016, claiming a record in originations for any one quarter,  a 49 percent year-over-year increase over the $96 million originated in the first quarter of 2015.

College Ave Student Loans to Present on Student Loans and Online Lending Marketplace Trends at May Conferences, (Business Wire), Rated: B

At Experian’s Vision Conference in Arizona on May 17, DePaulo, co-founder and chief executive officer of College Ave Student Loans, will join the panel discussion “Innovation and Partnership in Marketplace Lending,” and will share College Ave Student Loans’ unique approach to marketplace lending, including partnerships and other business development tactics that are helping to drive the company’s growth.

 

United Kingdom

Isle of Man opens the door to crowdfunding platforms, (International Adviser), Rated: AAA

The Isle of Man has introduced new legislation to regulate crowdfunding platforms in a bid to attract more of the peer-to-peer lending startups to the island.

“The Isle of Man is the first international business center to introduce this type of legislation and we believe it will support the creation and growth of new businesses on the Isle of Man,” said John Garland, head of corporate financial services for the Isle of Man’s government. –

 

China

Chinese banks resume online payment services for P2P lending platforms, (China Daily), Rated: A

China’s commercial banks are gradually resuming third-party payment services for online person-to-person (P2P) lending platforms, Beijing Morning Post reported on Wednesday.

“The Agricultural Bank of China (ABC) has reopened the channel,” P2P lending startupDuanrong confirmed to the paper, saying the bank had resumed the service in April, setting the same payment limits as before. However, China Merchants Bank (CMB) has yet to resume the business, the source said.

 

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.

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *

Testimonials

default gravatar

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default gravatar

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default gravatar

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default gravatar

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default gravatar

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest