May 11th 2016, Daily News Digest

  • Delinquency rates remain steady in personal loans. Credit card and auto loans delinquency increase in oil-driven states.
  • Goldman and Jefferies stopped buying LC loans. Goldman may seek private sale instead of securitization.
  • When Capital One had a Lending Club moment it hurt but it survived.
  • Wells Fargo entering next-day loans for SMEs on prop platform.
  • Not yet time to bargain hunt stocks, we believe.
  • BofI Bank potentially in trouble due to OnDeck contract expiring.
  • Credit Suisse: “Lending Club will discontinue grades D to G”. Is this a leak ?

Note: Start today Lending Times will split the news sections by geography. Lending Times is striving for a global coverage.

US newsUS flag

U.S. Delinquency Rates Remain Low to Open 2016, though Energy State Rises Beginning to Have Greater Impact on Nation, (TransUnion), Rated: AAA

The serious delinquency rate for unsecured personal loans (the rate of borrowers 60 or more days past due) remained steady at 3.53%, unchanged from Q1 2015. Nevada had the largest year-over-year increase in unsecured personal loan delinquency, while New Hampshire had the largest decline.

The national average for both serious credit card and auto loan delinquencies rose to levels not observed during the first quarter since 2013. The largest contributor to this is the continued energy and oil slump, impacting performance in the energy sector states such as North Dakota, Oklahoma and Texas.

Serious credit card delinquency reached 1.47% in Q1 2016, a 6.9% increase from 1.37% in Q1 2015. North Dakota had the largest year-over-year increase in credit card delinquency in the first quarter of 2016, while Maine had the largest year-over-year decline.

In Q1 2016, serious mortgage delinquency (the rate of borrowers 60 or more days past due) declined to 2.25%, down nearly 24% from 2.95% in the first quarter of 2015. North Dakota was the only state with an increase in delinquency from Q1 2015 to Q1 2016. Florida had the largest year-over-year decline in mortgage delinquency.

Serious auto loan delinquency rose to 1.12% in Q1 2016, a 13.1% increase from 0.99% in Q1 2015. Maine had the largest year-over-year decline in delinquency in the first quarter of 2016, while North Dakota had the largest increase in auto delinquency in Q1 2016.

Report highlights:
Total unsecured personal loan balances reached $92 billion in Q1 2016 and have more than doubled since Q1 2012
Serious delinquency on auto loans (60 or more days past due) hit 1.12% in Q1 2016, the first time it has topped 1% in the first quarter since 2011.
Serious credit card delinquency rates (90 or more days past due) increased to 1.47% in Q1 2016, the highest level observed for the first quarter of the year since a 1.51% reading in Q1 2013.

Goldman, Jefferies stopped buying LendingClub loans, (Market Watch), Rated: AAA

Goldman has been working with the company in recent days to help it determine the best way to access the capital markets, one person familiar with the matter said. If a securitization deal is no longer plausible, LendingClub and Goldman could seek to negotiate a private sale with an investor, for example.

Two Wall Street banks handling bond sales for LendingClub Corp. have stopped buying the company’s loans as they review events that led to the ousting of its chief executive, people familiar with the matter said.

The pause in loan buying from the Wall Street firms is delaying LendingClub’s plans to take hundreds of millions of dollars in its consumer loans and package them into securities to sell to investors.

Shedding Tears, (Fintech Junkie), Rated: A

My response to what I think about the recent news and the implications on the industry is that I’m sad.  Not angry, not frustrated, not panicked.  Just sad.

In a similar situation, Capital One survived but it wasn’t a fun time.  Management informed the Street that we were likely to miss earnings, the stock took a major hit, smaller product lines were shuttered completely, and lots of people across the entire company were fired or let-go as the business units were forced to reduce their costs.

Wells Fargo’s next-day loans encroach on LendingClub’s turf, (The Charlotte Observer), Rated: AAA

Wells Fargo & Co., the third-biggest U.S. bank by assets, is starting a program to offer small businesses online loans in as soon as one day, targeting territory occupied by On Deck Capital Inc. and LendingClub Corp.The FastFlex program will offer one-year loans of $10,000 to $35,000, with borrowers required to make weekly payments.

“With a $100 billion lending goal, we want to make every responsible small-business loan we can,” Lisa Stevens, Wells Fargo’s head of small business, said in the statement.

Is It Time To Go Bargain Hunting In LendingClub’s Stock?, (Forbes), Rated: AAA

With the stock down close to 50% in the last three days, isn’t it time for contrarian investors to jump in? It’s too early in my opinion.

For several reasons: first, the stock is trading well below its 50-day moving average, making any short-term recovery very unlikely. Second, the stock will continue to be under pressure from margin selling, prompted by its precipitous decline. Third, it isn’t clear yet whether all the negative news surrounding the departure of its CEO is out.

OnDeck’s Implosion May Soon Engulf BofI, (Seeking Alpha), Rated: AAA

BOFI’s results have been increasingly driven by the origination of hundreds of millions worth of highly suspect loans, brokered by boiler rooms and made in partnership with “alternative” lenders.

BOFI has not disclosed that its large contract with OnDeck Capital is expiring and “will not be renewed”, meaning that $200-300M in annual profit-fueling loan originations will likely vanish.

With bad loans having been packaged into securities that investors no longer want to buy, OnDeck Capital has recently imploded, a development that has major implications for BOFI’s lender-finance operation.

In total, I estimate that BOFI has $1Billion of balance sheet exposure to loan pools of questionable quality for which it has set aside a paltry $9.2 million in provisions.

Now also holding $192 million in “C&I” CLOs & Asset Backed Securities, I believe BOFI increasingly resembles a giant leveraged junk bond fund with increasingly haunting parallels to Imperial Savings.

LendingClub CEO Exit Brings New Headache to Upstarts, (Wall Street Journal), Rated: A

The ouster of LendingClub Corp. CEO Renaud Laplanche is raising new credibility questions about online lenders that threaten to shake up the Silicon Valley-backed industry.

While similar issues haven’t been reported at other companies, scrutiny is likely to ramp up among investors.

Large money managers including BlackRock Inc. and TCW Group Inc. haven’t invested heavily in loans from the online lending industry recently, said people familiar with the matter, in part because returns haven’t been attractive relative to the perceived risks, and because data available on the loans and borrowers can be spotty, people familiar with the matter said.

“Of course [LendingClub’s troubles are] going to have a ripple effect. It’s going to cause smart investors to ask a litany of questions about best practices. It’s cause now to question every player in the space legitimately.”

Opportunities and Challenges in Online Marketplace Lending, (US Department of Treasury), Rated: A

The U.S. Treasury Department today issued a white paper regarding its review of the online marketplace lending industry. The white paper titled, “Opportunities and Challenges in Online Marketplace Lending,” provides an overview of what the Treasury Department heard in response to its Request for Information, and it contains research on and recommendations for the industry.

Dep of Treasurey recommendations:
1.  Support more robust small business borrower protections and effective oversight
2.  Ensure sound borrower experience and back-end operations;
3.  Promote a transparent marketplace for borrowers and investors;
4.  Expand access to credit through partnerships that ensure safe and affordable credit;
5.  Support the expansion of safe and affordable credit through access to government-held data;
6.  Facilitate interagency coordination through the creation of a standing working group for online marketplace lending.

Marketplace Lending: Bruised, Not Buried, (American Banker), Rated: A

The reasons for Laplanche’s departure were discussed in the Lending Club quarterly results call yesterday. By all accounts, the board was seen to be acting decisively to address the concerns and ensure both that Lending Club gains investor confidence in its data and that it can continue to build out the marketplace lending model.

Many have compared the growth of marketplace lenders to what we saw in the subprime loan crisis, suggesting that that history will repeat itself here. They say marketplace lenders have a conflict of interest, looking to grow fee income regardless of credit quality of the loans that they issue.

It is worth pointing out that the growth of marketplace lending is a global phenomenon. The movement away from banks and towards a model where borrowers and lenders come together on a platform is now happening around the world.

Yet there are still aspects of the marketplace loan ecosystem that are evolving. An example is the market for loan buyers. The selloff of high yield bonds in the first quarter contributed to a drop in the secondary market prices for marketplace loans, and therefore a drop in liquidity. This made it difficult for funds to allow redemptions. Although marketplace lending yields are inviting, many are still reluctant to invest in this space. Lending Club has 111 different variables for each loan for potential investors to weigh, and it is not clear yet whether investors are comfortable with the diversified portfolio model.

Did The Model Just Die For LendingClub And Other P2P And Marketplace Lenders?, (Seeking Alpha), Rated: AAA

Credit Suisse’s take: “We hence have to contemplate further downside risk on top of the ~15% of D-G grade loans LC has disclosed it will eliminate – at this point it is difficult to gauge the ultimate impact from this event, and management has hence pulled financial guidance for the time being.”

Anyway, if these companies can’t find ways to get credit risk off their balance sheets, this business model will have a tough time surviving over the long haul.



UK newsUK flag


LendInvest scraps development finance exit fee, (Financial Reporter), Rated: A

Previously a 2% fee applied if the loan-to-GDV was over 50%.

Loans are available to experienced property developers looking to build residential or semi-commercial properties in England and Wales over terms of up to 24 months. Borrowers can apply for up to 65% of the gross development value, up to 100% of the development costs and may be eligible for loans of up to 90% of total project costs.

UK peer-to-peer lenders talk up regulation after Lending Club ruckus, (Daily Mail), Rated: A

Top platforms in Britain say they are already regulated comprehensively.

“The sector in the UK is more regulated and it has put quite a lot of emphasis on transparency, with all loan books published,” Rhydian Lewis, chief executive of RateSetter, the second largest UK platform, told Reuters.

The United States and other countries regulate P2P under existing consumer and business lending rules fashioned for banks and other lenders.

RateSetter’s Lewis, also a board member of the Peer-to-Peer Finance Association (P2PFA) trade body, said breakneck growth in new loans had slowed to 5-10 percent a month as regulation beds in.

He said this would make “big consolidation” inevitable as smaller platforms struggle to find business.

Industry officials note that so far it has been at listed platforms that problems have been uncovered: Lending Club in the United States, and TrustBuddy, a Swedish P2P platform that suspended operations last year.

£15m peer-to-peer scandal as two listed companies are forced to reassure investors over their relationships with US lender LendingClub. (This is money), Rated: A

P2P Global Investments said that although it does invest in LendingClub loans it is not exposed to the area of the business which the review concerned.

It said it invests only in ‘prime’ (high quality) loans. P2P GI’s shares fell 2.6 per cent, or 24.5p, into the red amid uncertainty, finishing at 915p.

Meanwhile, VPC Speciality said it does not invest in the company and ‘has never had any exposure to LendingClub nor any loans originated by it’. VPC’s shares dropped 1.9 per cent, or 1.75p, to 90.25p.


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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