- Long-term prognosis for marketplace lending is strong.
- When automobile industry had turbulence people didn’t rush back to horse-buggies.
- It’s the bank’s fault. Banks push non-traditional lenders to originate increasingly large portfolios and thus begins a dubious product supply chain.
- Securitization in marketplace lender student loans rates upgraded to AA.
- Greed Dot launches an online marketplace for unsecured personal loans for moderate income population.
- Discussion on LendingClub’s stock value
- Update on Bethune vs Lending Club class action, arbitration and CFPB’s stance.
- Top 7 Real Estate Crowdfunding sites and product types.
- RateSetter’s CEO : our capital is 95% from normal people, and other thoughts.
Despite Recent Setbacks, Long-term Prognosis for Marketplace Lending Is Strong, (Forbes), Rated: AAA
Every industry has its bumps, and in the case of marketplace lending, some of this is due to growing pains. Small business lending is profitable — more so than mortgage lending. I came to this realization nearly a decade ago when I analyzed bank portfolios for Deloitte.
Despite the events of in the past week, marketplace lending is still on solid ground.
Because it is the way of the future. Younger generations of entrepreneurs are accustomed to using technology for everything from buying coffee at Starbucks to applying for small business loans. Many of them have never entered a bank branch, much less conducted transactions there — unless it involved getting cash from an ATM.
Let us not forget that marketplace lending significantly reduces costs and risk for lenders, which is good for them and for borrowers, too. The use of data analytics in the lending process lowers default rates and increases the flow of capital. Thanks to online platforms, the process of gathering borrower information and packaging it for loan underwriters is quicker and more efficient than ever before.
Competition in the market forces players to up their game. Some will falter, but the strong will thrive — just like in any other industry. This fact is encouraging for small businesses in search of capital. Despite tremendous volume of SBA loans, the government itself is not in the lending business. Ultimately, the supply of capital comes from private and corporate lenders that are using technology to minimize risk and streamline the process. In fact, it’s not really “the wave of the future,” rather, it’s happening now and will certainly continue.
Is This The End Of Marketplace Lending?, (Seeking Alpha), Rated: AAA
Since Monday morning, the alarmists have been out in full force, nonsensically declaring the end of marketplace finance and FinTech in general. But what some may consider the end, I view as a new beginning.
Cynics, I have a newsflash for you. When the automobile industry experienced turbulence, people didn’t rush to trade back their cars for horse-drawn buggies. When the Internet bubble burst in 2000, people did not revert to fax machines. Likewise, we are not going to return to antiquated lending models.
Millennials are not going to suddenly start liking banks more than root canals. People are not going to stop looking online for investment ideas. They are not going to resume waiting around for some stock jock to call and pitch them on 100 shares of IBM (NYSE:IBM). The FinTech train has long left the station and there is no turning back.
Personally, when I detect fear and pessimism in markets, I smell opportunity. Opportunity for better business models to prevail. Opportunity for innovation to flourish. And opportunity for money to be made. Today is no exception.
P2P running out of steam? Thank God!, (International Financing Review), Rated: AAA
The alternative lending revolution that emerged from the global financial crisis as a grass-roots anti-bank movement has been curbed. The disruptors have been disrupted by the disruptees.
Marketplace lending has been fully institutionalised at the equity and venture funding ends; and at the business origination and loan off-take ends.
Witness Citigroup’s US$150m commitment to Lending Club (to help it reach “under-served” borrowers), the agreement by Jefferies to purchase US$500m of loans from CircleBack; BlackRock’s US$330m investment in loans originated by Prosper Marketplace; Apollo Global Management’s commitment to buy US$1bn in student consolidation loans originated on the LendKey platform; or KLS’s agreement to invest £132m in small business loans originated by Funding Circle.
Witness also US$150m in equity capital provided to Funding Circle by Russian billionaire Yuri Milner’s DST Global, Baillie Gifford, BlackRock, Sands Capital Ventures and Temasek; or Prosper’s US$165m Series D financing funded by Credit Suisse Asset Management, JP Morgan Asset Management, SunTrust Banks, BBVA Ventures, Neuberger Berman and others.
My point is this: the online platforms were close to irrelevant in the ABS deals. While the KLS ABS deal was interesting in that KfW bought most of the senior tranche thanks to a guarantee under the European Investment Fund’s SME credit enhancement programme, Moody’s listed one of the credit weaknesses as “potential misalignment of interest between Funding Circle and the investors as Funding Circle does not retain direct economic interest in the transaction”.
The performance of LC’s shares are certainly confounding in light of its Q1 results: loan originations up 68% year-on-year at US$2.75bn; operating revenue up 87% at US$151.3m; adjusted Ebitda more than double at US$25.2m; net income of US$4.1m versus a loss of US$6.4m in the year-earlier period; and adjusted EPS of five cents against two cents. The company’s servicing portfolio almost doubled to US$10.2bn and the first quarter saw the company’s first month with more than US$1bn in originations. And what a contrast with the business stats. But against the heady data and general euphoria about the sector, a more concerning news stream has been emerging.
Lenders who rely on securitisation to continue growing may need to go back to the drawing board and re-think their business models and the operational value-chain. Bear in mind Lending Club, AvantCapital, CircleBack, OnDeck, Prosper, SoFi and Funding Circle have all sold ABS deals and it’s become a sector closely-watched by other players.
Banks push non-traditional lenders to originate increasingly large portfolios of assets and thus begins a dubious product supply chain. Ring any bells?
DRB Prices Sixth Securitization of Refinanced Student Loans and Obtains AA Ratings by Moody’s and DBRS, (Market Watch), Rated: AAA
DRB, a national bank and the fastest marketplace lender to reach $1 billion in student loan refinancings, today announced it has priced its sixth securitization. This sixth securitization brings total issuance in excess of $1.3 billion.
The $203 million securitization benefited from ratings upgrades on the senior notes to AA by Moody’s Corporation and DBRS. The loan portfolio was comprised of 88% fixed and 12% variable loans. Notably, the transaction was oversubscribed with several first time buyers vying for participation. Credit Suisse and Bank of America Merrill Lynch were joint bookrunners on this transaction.
DRB (Darien Rowayton Bank) is a bank, national marketplace lender, and the fastest lender in industry history to reach $1 billion in student loan refinancings. FDIC insured and established in 2006, DRB has helped thousands of professionals with graduate and undergraduate degrees across the country to refinance and consolidate federal and private student loans, saving these borrowers thousands of dollars each.
Green Dot Launches Green Dot Money: An Online Marketplace Connecting Lenders with Borrowers, (Business Wire), Rated: AAA
Green Dot Corporation (NYSE:GDOT) today announced the launch of Green Dot Money, an online marketplace that seeks to match low and moderate income consumers with a curated set of lending partners that specialize in serving low and moderate income Americans.
Green Dot Money has an opportunity to help these hard-working Americans find a loan that suits their needs at an interest rate and repayment schedule that makes sense for their financial circumstances.
“The low-income lending segment is in the early stages of unprecedented changes stemming from proposed new regulation putting pressure on the loan product itself, while new technologies and customer acquisition preferences are putting pressure on traditional customer marketing strategies and cost per funded loan. Our goal is to capitalize on these fundamental changes in the lending industry to take advantage of Green Dot’s natural assets of a large customer base, a rich data stream on that customer base, a collection of market-leading fintech capabilities and assets combined with a deeply valued national brand name to create something special. Of course, as with any new endeavor, there is always risk. But given the limited investment required to create Green Dot Money and the potentially meaningful opportunity for organically generating new streams of high margin revenue by helping customers find their “Yes,” we are certainly eager to get going and see what we can do.
Green Dot Money is available to consumers on a nationwide basis with initial lenders able to offer loans in 46 states. Anyone can accessGreendotmoney.com and apply for a loan. The service is not restricted to existing Green Dot customers. Approved applicants can have their loan funded in a variety of ways, including a Green Dot prepaid card or the individual’s own checking account. To learn more, visit www.GreenDotMoney.com.
Green Dot invented the prepaid debit card industry and is the largest provider of reloadable prepaid debit cards and cash reload processing services in the United States. Green Dot is also a leader in mobile technology and mobile banking with its award-winning GoBank mobile checking account. Through its wholly owned subsidiary, TPG, Green Dot is additionally the largest processor of tax refund disbursements in the U.S. Green Dot’s products and services are available to consumers through a large-scale “branchless bank” distribution network of more than 100,000 U.S. locations, including retailers, neighborhood financial service center locations, and tax preparation offices, as well as online, in the leading app stores and through leading online tax preparation providers. Green Dot Corporation is headquartered in Pasadena, Calif., with additional facilities throughout the United States and in Shanghai, China.
Community Bank Group Suspends LendingClub Purchases, (Wall Street Journal), Rated: A
A consortium of 200 small banks has temporarily suspended a program of loan purchases from LendingClub Corp. as the banks review the events that led to the ouster of the online lender’s chief executive.
BancAlliance entered into the program with LendingClub last year. In the deal, the alliance facilitates purchases by community banks of LendingClub loans. Since then, BancAlliance members have purchased about $200 million of loans from LendingClub, according to Mr. Merrill. LendingClub declined to comment.
Banks are a significant source of funds for LendingClub. In February, Mr. Laplanche said banks provide about 25% of the capital for LendingClub loans. In the first quarter, that amount rose to more than one-third, as LendingClub funding from banks stood at $947 million, more than double the amount in the first quarter of 2015.
BankNewport is one of the largest purchasers under the consortium’s program, with a portfolio of $25 million of LendingClub loans. On the first business day of each month, it places an order for new loans, typically about $1 million to $1.5 million, to replace loan principal as it is paid down.
It also makes some additional purchases of loans made by LendingClub to BankNewport customers. BankNewport executives said it is more cost-effective to have LendingClub originate the loans than for the bank to underwrite them.
“They have a scale we don’t have here,” Mr. Merrill said.
BancAlliance plays a central role in LendingClub’s relationship with its community-bank members. It is managed by Alliance Partners, an investment adviser that acts as asset manager for the consortium.
BankNewport said it occasionally tests a sample of the loans to monitor their quality, but that most of the oversight is done by Alliance Partners. Bank executives said they haven’t reviewed previously purchased loans based on Mr. Laplanche’s ouster.
Alliance Partners has communicated frequently with LendingClub this week and has been providing updates to its members, a person with knowledge of the situation said. Because BankNewport buys loans on the first of each month, the suspension of the BancAlliance program won’t have any practical effect until June 1. Executives at the bank said they expect the program will be restored before that point.
Jim Chanos Says He Was Short LendingClub, (Bloomberg), Rated: AAA
Jim Chanos, the investor who predicted the collapse of Enron Corp. in 2001, said he was short the troubled fintech firm LendingClub Corp. and made money betting against solar developer SunEdison Inc. before its bankruptcy.
Chanos, speaking in an interview with Bloomberg Television’s Erik Schatzker, said he was spurred to short LendingClub because “we had problems with the model.” He declined to say if he was still betting against the stock or when he took the position.
In his remarks on LendingClub, Chanos said such companies underscore the growth of shadow banking in the U.S. He said he’s seeing this trend everywhere, from vacation timeshares to specialized auto retailers and jewelry stores that finance and sell service contracts for wedding rings.
There are many companies “in the U.S. that really do finance their customers and depend on that for a large source of income,” Chanos said.
Plenty of investors are now shorting LendingClub. Short interest climbed to 71 million shares as of April 29, representing more than a fifth of the company’s shares available for public trading. The New York Stock Exchange reports short interest biweekly. The short ratio has also risen to 12.8, meaning it would take 12.8 days for that short interest to be covered, based on recent daily average trading in Lending Club’s shares.
LendingClub’s 42% Tumble Failed to Turn It Into a Cheap Stock, (Bloomberg), Rated: AAA
Think the 42 percent plunge that lopped $1 billion from LendingClub Corp.’s market value in two days has left the stock a screaming buy? Think again.
LendingClub has always been priced for growth with no margin of safety, a fact that was apparent to anyone holding the stock since it peaked just after its December 2014 initial offering then declined every quarter from a price seven times the level now. At its highest market capitalization above $10 billion the company was valued at more than all but 13 U.S. banks, data compiled by Bloomberg show.
Now it’s smaller than every lender in the S&P 500 and still not quite a value stock.
The shares trade for 15.1 times the average 2017 adjusted earnings estimate of 28 cents a share compiled by Bloomberg, compared with 13.9 times forecast profit for the Russell 3000 Financial Services Index. Large-cap banks in the S&P 500 Financial Index are cheaper at 10 times next year’s earnings.
“Even at four dollars there’s just too much risk here,” said William Ryan, an analyst at New York-based Portales Partners LLC who rate its an underperform. “It started out as an Internet company, then it became a fintech company, and now it just looks like a specialty loan broker. There are just too many uncertainties right now.”
To be sure, buyers still exist: almost 53 million shares changed hands yesterday, six times the 2016 average, and the stock has been little changed for two days. While almost as many brokerages say sell as buy and at least two have suspended coverage, Wall Street’s average price forecast for the stock implies about 50 percent upside from here.
A note this week from Craig-Hallum Capital Group LLC said LendingClub might be valued in a takeover something like a bond, with a diversified bank interested in a platform that might create an $11 billion loan portfolio with a 5.5 percent risk-adjusted yield.
“Now in a distressed sale, we would not expect a competitive bid near this level, but someone would be willing to pay something to get this inherent value which we peg at $12.28 a share,” analyst Bradley Berning wrote.
One metric on which LendingClub compares favorably to other high-growth financial services company is its price to book value. The stock is trading at about 1.3 times analysts’ average estimate of assets minus liabilities, compared with 2.9 times for the Russell 2500 Financial Services Growth Index.
Some Lending Club news you might have missed because you were watching its shares crash and burn, (Financial Times), Rated: AAA
One Ronald Bethune of New York filed suit last month alleging that the online lender’s relationship with WebBank — where Lending Club loans are originated by the Utah-based bank and then sold through Lending Club to investors — was a sham designed merely to avoid state interest rate caps.
The argument Lending Club is making is that Bethune has no right to file a class action lawsuit because when he took the loan, he agreed that any disputes would be worked out between him and the company in arbitration, rather than in a court. Basically, he gave away his right to sue when he took the loan.
Last week, the Consumer Financial Protection Bureau revealed plans to basically the end the use of arbitration clauses in consumer credit. Here’s the New York Times, which has done some great investigatory work on this issue:
The nation’s consumer watchdog is unveiling a proposed rule on Thursday that would restore customers’ rights to bring class-action lawsuits against financial firms, giving Americans major new protections and delivering a serious blow to Wall Street that could cost the industry billions of dollars.
The proposed rule, which would apply to bank accounts, credit cards and other types of consumer loans, seems almost certain to take effect, since it does not require congressional approval.
In effect, the move by the Consumer Financial Protection Bureau — the biggest that the agency has made since its inception in 2010 — will unravel a set of audacious legal maneuvers by corporate America that has prevented customers from using the court system to challenge potentially deceitful banking practices.
Honing their plan over decades, credit card companies, banks and other lenders devised a way to use the fine print of their contracts to push consumers out of court and into arbitration, where borrowers must battle powerful companies on their own. Without the ability to pool resources, most people abandon their claims and never make it to arbitration.
Well, Jaret Seiberg, a financial services policy analyst at Guggenheim Partners, reckons that Lending Club’s push for arbitration could end up backfiring by becoming a rallying point for opponents of such practices.
Which, among many other things, would be bad news for any Lending Club investors hoping the company could take a break from the public eye and lick its wounds in relative privacy.
Timeshare Business Spin-Offs Won’t Leave ABS Stranded, (Morningstar), Rated: B
As major hotel companies spin off their timeshare businesses, Morningstar Credit Ratings, LLC does not anticipate these changes will hurt the credit strength of asset-backed securities issued by these timeshare companies. Hilton Worldwide Holdings, Inc. is expected to spin off its Hilton Grand Vacations subsidiary later this year, the third company to do so following moves from Starwood Hotel & Resorts Worldwide Inc. earlier this month and Marriott International Inc. five years ago. These spin-offs may have weaker credit strength than their parents because of the capital intensive nature of the timeshare business and less income diversification. In addition, a stand-alone timeshare company no longer benefits from a parent with a stronger credit profile standing behind the servicing. Still, this does not necessarily weaken the credit strength of those ABS notes, as the credit risks related to the spinoffs can be mitigated through various servicing structures for the ABS and by maintaining the loan origination capabilities of the timeshare issuers, which directly impact the servicer’s ability to repurchase or substitute defaulted loans in the ABS transactions.
The future of P2P lending, from the borrower’s point of view, (Personal Loan Reports), Rated: A
With layoffs at Prosper and the resignation of Lending Club’s CEO, what does the p2p industry’s shakeup mean for the borrower?
“This industry has offered you another way to access debt when you need it. As the market starts competing with each other, it’s forcing the banks to also start offering online loans,” In other words, there are more options for alternative loan products than ever before.
So what’s the big takeaway from all this? If you are considering applying for a P2P loan, either act now, or plan to wait out the temporary turmoil that is coming down the pike. “Now that Prosper and Lending Club have management and profitability issues, they will probably raise their rates sometime in the next six to 12 months to assure investors and increase profits. You’re probably better off borrowing now than later.”
LendingTree Enhances Leadership Team with New Chief Technology Officer, Paul Tyma, (PR Newswire), Rated: B
LendingTree® (NASDAQ: TREE), the nation’s leading online loan marketplace, today announced that Paul Tyma has joined the company as its new Chief Technology Officer. Based in Charlotte at LendingTree’s headquarters, Tyma will lead the company’s technology strategy and operations.
Dr. Tyma received his Ph.D. in Computer Engineering from Syracuse University, focusing on Java and .NET performance, and has built and run engineering teams at LinkedIn and Morgan Stanley, along with his own companies. He also spent 3 years at Google as an engineer working on internal server development and has founded four technology-based startups including Preemptive Solutions, Mailinator, Home-account.com (later acquired by Bills.com) and Refresh, Inc. (acquired by LinkedIn). Additionally, Tyma is a frequent speaker, writer and author of one of the original Java books, “Java Primer Plus”.
LendingTree has facilitated more than 55 million loan requests. LendingTree provides free monthly credit scores through My LendingTree and access to its network of over 350 lenders offering home loans, personal loans, credit cards, student loans, personal loans, business loans, home equity loans/lines of credit, auto loans and more.
Top 7 Real Estate Crowdfunding Sites for Investors, ( A student of real estate game), Rated: AAA
Why she wrote this guide:
- There are a lot of poorly run platforms funding risky deals and it’s impossible for the amateur real estate investor to identify the good ones.
- There are several investment models and it’s challenging to determine which is right for you based on your investment objectives.
- The space is evolving rapidly and there are new investment models that investors should be aware of.
In the guide, she breaks down each platform outlining what I like, my concerns, fees to investors, their underwriting process, and even fun facts.
There are 5 core investment models to choose from:
Peer-to-Peer Fundamentals Attractive: RateSetter’s Lewis, (Bloomberg), Rated: AAA
RateSetter’s Lewis says that in the UK the platform funding is 95% by normal people. That is a huge diversification. ( 38,986 lenders).
The fact that banks are interested in loans shows how attractive these assets are.
RateSetter continues to grow. Industry has to prove itself through that cycle. RateSetter has a provision fund to protect investors through cycle.
Fundamentals are attractive : borrowers pay less, investors earn more.
UK Government is keen on nurturing p2p lending and support it to encourage competition with the banking. P2P lending is not lightly regulated. We are fully regulated. Fixed cost of that regulation will result in consolidation.
BancAlliance, a network of community banks that has been snapping up loans from LendingClub Corp., is weighing whether to suspend purchases on the online platform after the company said it’s overhauling internal controls. RateSetter CEO Rhydian Lewis gives an overview of peer-to-peer lending in the U.S. with Bloomberg’s Anna Edwards on “Countdown.”
Buy to let index reveals biggest returns now lie far beyond London and SE, (Letting Agent Today), Rated: A
Taking into account stamp duty bills after recent tax changes, alongside average house prices and average rental yields, the index from LendInvest looks at what investors can buy across the country for £250,000, £500,000, £750,000 and £1m.
In all price brackets, rental properties in Inner and Outer London offered consistently less attractive investment opportunities to those in other parts of the country when price, yield and stamp duty tax were considered equally.
LendInvest gives examples, stating that for £250,000, investors could buy a single studio flat in south east London or two three-bed properties in Durham – the latter option giving a 200 per cent higher rental yield and a 30 per cent lower stamp duty bill.
Peer-to-peer is ‘safe’, insist UK lenders, ( Financial Times), Rated: A
UK lenders were keen to distance themselves from LendingClub, pointing out that regulation governing lenders in the UK differs from that which applies to their US counterparts such as LendingClub. UK regulations were written specifically for peer-to-peer lenders, while US lenders follow rules devised before peer-to-peer lending existed.
“When the US regulator decided to force fit the idea of P2P lending into the existing regulatory framework it created a number of simmering tensions and pressures on those businesses and the way they operate,” said Mr Davis.
“Fraud risk is the biggest issue for the sector because you basically have to trust the management that they’re doing what they say they are,” said Mr Leech.
Members of the P2PFA follow a number of measures designed to increase transparency, including publishing bad debt rates and five years of credit performance, returns performance and full loan books.
Nationwide crackdown takes its toll on China’s P2P and internet finance industry, (South China Morning Post), Rated: A
China’s peer to peer (P2P) lenders are bailing out from the luxury office buildings they once occupied as part of their high-end image, as the nation’s internet finance industry, once the hottest ticket in China’s financial circles, undergoes turbulent changes brought about by a nationwide crackdown on fraud in the sector.
“Some high-end office buildings do not welcome P2P companies now. They worry that potential fraud from this sector would hurt the image of the building,”
“More than 30 per cent of the P2P companies closed down in the first quarter, or retreated from the CBD area. The leasing rate has dropped in some buildings, a rare situation for Shenzhen, where high-end office buildings have always been in short demand,”
A report issued by Cushman & Wakefield in late April noted that because of the tighter supervision over P2P platforms “vacancy rates in Grade A office buildings in the Futian and Luohu districts in Shenzhen went up in the first quarter, as a rising number of P2P companies closed up or surrendered their tenancy”.
The number of P2P platforms under so-called “normal operation” in China has declined for five months in a row to 2,431, a drop of 7 per cent from the peak in last November, according to industry data provider WDZJ.
Up until April this year, WDZJ found that 1,598 P2P platforms, almost 40 per cent of the total P2P companies it tracked, had either shut down, defaulted on repayments, or the people in charge disappeared. But industry insiders said the real situation was worse.
There is also a crackdown on maturity mismatch in P2P lending – where the loan maturity of investors is not in line with the investment maturity – and on “fund pools”, in which investor funds are combined into a single pool instead of being matched with specific loans.
Zhang Guodong, secretary general of the Shenzhen Internet Financial Association, said the idea behind the current regulatory crackdown was firstly to keep newcomers out of the business, and secondly to clean up the existing market players.
“There was no entry barrier to start a P2P business before. Spend 40 yuan to buy software from Taobao, and you could start the online lending business with no regulator watching you – that’s why there were so many fly-by-night swindles,” he said.
Author: George Popescu