May 9th 2016, Daily News Digest

  • Renaud Laplanche resigns from Lending Club in an apparent power struggle with investors and the board.
  • While Lending Club beat expectation every quarter so far, delays 1Q2016 earning announcement by 10 days.
  • SoFi offers equity to sovereign, insurers, and pension funds in exchange for loan purchase.
  • Small platforms in the UK struggling to reach origination volume.
  • Banks are slowly starting to offer online loans using partner platforms.

Lending Club CEO Renaud Laplanche Resigns following Internal Review of Loans to Single Investor, (Crowdfund Insider), Rated: AAA

Comment: The main reason why Renaud Laplanche departed does not seem in our eyes as a reason to change CEOs. This signifies that other forces were at play here. It is likely that the investors used this pretext to push out the company’s founder and CEO.

Lending Club (NYSE:LC) founder and CEO Renaud Laplanche has submitted his resignation to the board of directors following an internal review of a sale of loans to a single investor. According to the company, $22 million in loans were sold to a single investor against “express instructions as to a non-credit and non-pricing element, in March and April 2016.” Scott Sanborn, who only recently assumed the role of President, will assume the title of acting Chief Executive Officer.

Regarding the loans in question, Lending Club stated that certain personnel apparently were aware that the sale did not meet the investor’s criteria. Last month, Lending Club took measures to repurchase the loans at par and subsequently sold them to another investor. As a result of the repurchase, as of March 31, 2016, these loans were recorded as secured borrowings on the Company’s balance sheet and were also recorded at fair value. The financial impact of this reporting is that the Company was unable to recognize approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans.

The board then hired an outside firm to review all other loans facilitated in the first quarter of 2016. No other issues were uncovered.

These steps also included the termination or resignation of three senior managers involved in the sales of the $22 million of near-prime loans.

LendingClub Draws Skepticism From Investors, (Wall Street Journal), Rated: AAA

So far, LendingClub has beaten earnings expectations in every quarter since it went public and has several times raised future guidance. Out of more than 1,200 public companies in the U.S., it was among the 10 fastest growing last year by revenue, even without making any large acquisitions, according to FactSet.

Yet investors have remained skeptical, with many arguing that LendingClub will hit a wall once credit-market conditions deteriorate, competition grows stronger or legal barriers are put in place.

But now, some analysts say that if LendingClub can again maintain its pace in the first quarter, amid worsening credit and market conditions, it could go a long way toward quieting the doubts.

Even at a price 68% below its IPO price, it is still valued closer to a tech company, which tend to trade at higher revenue multiples to reflect high profit margins, than other financial businesses, which tend to have higher costs associated with making risky bets.

Mr. Laplanche’s belief that retail investors would be key to funding loans seems to have been borne out, too. While other online lenders, including Prosper, Avant and Social Finance Inc., sold the vast majority of their loans to institutions, LendingClub still put more than 40% in the hands of smaller investors.

Lending Club looks to cope with challenge, (Financial Times), Rated: AAA

Shares in Lending Club, which competes with Prosper, closed the week down about 11 per cent, while OnDeck dropped 39 per cent. The two companies are now off about 54 per cent and 75 per cent, respectively, from their initial public offerings in December 2014.

Prosper originated $973m of loans during the first quarter, down from $1.1bn, its first quarter-on-quarter fall since the current management team took over three years ago. It expects another fall between April and June.

Ram Ahluwahlia, chief executive of PeerIQ, notes that the biggest players such as SoFi are keen to show regulators that they can be as dependable as the banks, which are required by charter to stay active in their segments.

SoFi offers equity to tempt new partners, (Financial Times), Rated: AAA

Online lending group SoFi is offering institutional investors slices of its equity in exchange for commitments to buy loans, as it tries to lock down secure sources of funds.

Unlike the group’s last round in September, which was populated by venture firms such as SoftBank, SoFi is now targeting insurers, pension funds and sovereign wealth funds in Europe and Asia, trying to tie them in to deeper, more strategic partnerships.

“What we have to do is to find alternatives to deposits,” said Mr Cagney, adding that he hoped to close the new equity round by late summer. “It is difficult to be originating $1bn-plus a month if you don’t know where those loans go.”

“Platforms that have secure sources of funding in place will slingshot past their rivals during the next downturn,” said Ram Ahluwalia, chief executive of PeerIQ, a data and analytics firm. “The name of the game is who can find lowest-cost resilient capital.”

Is the Wheat Quietly Separating From the Chaff? (P2P-Banking), Rated: AAA

With everybody focussing on the larger p2p lending merketplaces, I think another current development in the space in the UK is happening without much attention. Looking at the numbers each months while the larger players go from strength to strength, some of the smaller marketplaces are in stagnation or even in decline in terms of volume.

From an investor’s viewpoint there is little incentive to add funds on platforms that are not delivering much dealflow.

What will be the future outcome for these marketplaces? I think the most likely scenario is that their dealflow will dry out, and they will at some point in time not be able to sustain operations anymore due to lack of enough funding to pay operating costs. We will then see first hand whether the mandatory agreement (under full authorization, which most platforms don’t have yet) to have a 3rd party take over to service the loans and run down operations will work in an orderly manner.

Marketplace lenders: Coming soon to a bank near you, (Bankrate), Rated: AAA

Soon you might be able to go onto your bank’s website and apply for a personal loan using a marketplace lender’s digital lending platform and underwriting technology.

Regions, which offers its own online loan application, says Avant’s platform will allow the bank to provide “a more digital streamlined experience.” Many would-be borrowers today still have to go to a branch to complete the application process.

Applicants who are rejected for a Regions loan may be offered funding from Avant. Each side stands to benefit under a revenue-sharing agreement if a loan is fulfilled.

Keep P2P lending out of leverage ratio limits: Experts, (Financial Express), Rated: A

Comment: article covering the Indian market.

Welcoming the RBI’s move to bring the nascent peer-to-peer (P2P) lending under regulation, experts want the banking regulator to keep the sector out of leverage ratio limits as they are not deposit-taking entities.

P2P lender SocietyOne eyes growth in market share, (Business Review), Rated: A

Completion of the Series C raising, revealed by The Australian last month, came as new chief executive Jason Yetton committed to a five-year goal to build a 2-3 per cent share of the $105 billion consumer finance market.

Why banks should be offering more P2P and bitcoin services for SMEs, (City A.M.), Rated: A

Accenture found 58 per cent of 1,000 UK SMEs choose a bank based on lower cost and 56 per cent on overall service quality.

Four per cent currently choose on value-added services and the report suggested this should change.

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 ( ), 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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