News

May 16th 2016, Daily News Digest

US

  • Renaud’s departure timing was unfortunate, that’s all.
  • Whole-loan and ABS current investors and potential investors’ thoughts.
  • What happens if Lending Club goes out of business ?
  • Lending Club’s value is $1.34bil and has $868m in cash.

UK

  • UK is exporting successful #RegTech, US is moving backward.
  • Learn from equities in 1933, register every note in p2p lending ?
  • LendInvest’s amazing statistics.
  • UK’s P2P funds in turmoil, from 20% premium to 12.8% below book value.

China

  • New Chinese Ponzi fraud, Wealthroll, for $6.1 billion.

United States

Lending Club And What It Means For Fintech, (Forbes), Rated: AAA

The timing of Renaud’s departure was unfortunate for two reasons. First, it came during a time when there is already negativity around the space.

Second, it overshadowed the positive news regarding Lending Club’s overall growth and trajectory, as made clear by its positive earnings and revenue growth. The company beat earnings expectations and had doubled revenue as compared to the same time last year. This is a remarkable declaration that should have garnered more fanfare.

What does this news mean for the fintech industry? This is an unfortunate development, but it doesn’t erase the solid foundation and talented teams that most fintech companies, including Lending Club, have built over the last decade.  Fintech will not only survive, but thrive, largely because the business model these pioneers developed is still sound.

Platforms like Lending Club, Prosper and SoFi gained momentum as a result of the great recession. Marketplace lenders offered an attractive alternative for both borrowers and investors.

This news, while surprising, highlights the importance of regulation, sound business practices and transparency in fintech no matter how small or big the company may be. The loss of Renaud is a staggering blow, but the growth of fintech won’t be halted. The industry will recover, Lending Club will recover, and it will all be thanks to solid fundamentals.

PeerIQ pros/cons table summary, (PeerIQ email), Rated: AAA

Comment: this information comes from PeerIQ’s email.

“Over the past week, we have fielded 50+ conversations with institutional investors and platforms. Views tend to split across investor type. We attempt to summarize these disparate views in the table below.   ”

peerIQ pro con summary

 

What happens if Lending Club goes out of business?, (FT Alphaville), Rated: AAA

To be fair, it’s still unthinkable — the company had $868m in cash, cash equivalents and securities as of March 31 this year — but with the shares having nearly halved in just a week, now seems as good a time as any to check the fine print.

Let’s first think about it from the point of view of an investor. Instead of buying a loan, you actually buy a promissory note, meaning that the company takes your money and gives you a piece of paper that promises you repayment on certain terms. Lending Club then uses that money to buy a loan from WebBank, which is the company’s origination partner. Lending Club’s obligation to pay you, the investor, is limited to the amount it receives from the borrower, who has an obligation to Lending Club rather than you. You might be able to see where we’re going here, but let’s just spell it out: there is just the slightest sliver of intermediation going on here. Lending Club is not a 100 per cent pass-through, it’s more like a 99 per cent pass-through.

In long-form, and from Lending Club’s prospectus again, here’s what that looks like. We’ve highlighted some of the pertinent sentences, but you may want to read in full:

The recovery, if any, of a holder on a Note may be substantially delayed and substantially less than the principal and interest due and to become due on the Note. Even funds held by us in accounts “in trust for” the holders of Notes may potentially be at risk.

The commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent us from making regular payments on the Notes, even if the funds to make such payments are available. Because a bankruptcy or similar proceeding may take months or years to complete, the suspension of payment may effectively reduce the value of any recovery that a holder of a Note may receive (and no such recovery can be assured) by the time any recovery is available.

If the holder of a Note receives a recovery on the Note (and no such recovery can be assured), any such recovery may be based on, and limited to, the claim of the holder of the Note for principal and for interest accrued up to the date of the bankruptcy or similar proceeding, but not thereafter.

If a borrower has paid us on a Loan corresponding to a Note before a bankruptcy or similar proceeding of us is commenced, and those funds are held in the clearing account and have not been used by us to make payments on the Note as of the date the bankruptcy or similar proceeding is commenced, there can be no assurance that we will or will be able to use such funds to make payments on the Note.

While the Trust Agreement states that funds in the ITF Account are trust property and are not intended to be property of ours or subject to claims of our creditors generally, there can be no assurance that, if the matter were to be litigated, such litigation would not delay or prevent the holder of a Note from accessing the portion of those funds in which the holder has an interest.

Of course, you would expect a company to ensure that every last possible eventuality had been properly disclosed to investors. So you can probably chalk most of that down to thorough box-ticking. On the other hand, niceties in the small print never matter until they matter.

 

IEG Holdings Corporation Announces Record Q1 Revenue and Surpasses $12 Million Cumulative Loan Volume Level, (Street Insider), Rated: A

Comment: for everybody unfamiliar with IEG Holdings ( I wasn’t familiar myself): the company shares trade over the counter ( OTCQX). 

“IEG Holdings Corporation (OTCQX: IEGH), a provider of online unsecured consumer loans, today announced that the registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 25, 2016, as amended on February 22, 2016 and March 3, 2016 (as amended, the “Form S-1″), related to the Company’s direct public offering of 1,000,000 shares of its common stock at an offering price of $5.00 per share, was declared effective by the SEC. If all of the shares being offered pursuant to the Form S-1 are sold, the Company would receive an aggregate of $5 million. The Company plans to use the proceeds from this offering to fund new loan originations and for general corporate purposes.”

IEG Holdings Corporation (OTCQX: IEGH) announced today that its first quarter revenue increased 54% in 2016 to $524,972 from $340,336 in 2015, driven by continued strong loan volume growth. Since January 2015, cumulative loan volume has increased by 117% from $5,549,023 to $12,049,023 as of May 12, 2016. Other highlights were the raising of substantial additional equity capital over March and April, 2016 which will enable an acceleration of short term loan volume growth.

 

Lending Club – Fintech’s Fundamental Challenge To Bank Franchise Value, (Value Walk), Rated: A

Think about how taxi companies are now so desperately trying to assure passengers that a medallion cab is safer than Uber and see what happens when rules are not seen as a meaningful protection when a better, cheaper, faster option is at the tip of one’s smartphone-enabled fingers.

Banks now have a unique window of opportunity to reassert their franchise value while P2P is on the pavement. Doing this will, though, take more than some of the financial-engineering improvements several banks are rushing to market – it will also take firm proof of the principle that banks are better than unregulated competitors because banks take precautions and ensure protections that count to consumers.

 

LendingClub: Death Watch Value, (Seeking Alpha), Rated: AAA

The stock now trades near cash values despite any indication that the loan performances are impacted. LendingClub now trades near death watch value providing an incredible entry point though risks of lower prices exist in the near term.

LendingClub dropped to $3.50 on Friday for an incredibly low market valuation of $1.34 billion. With $868 in cash, should investors run towards the online lending platform while everybody else is running away?

The biggest fear is that the platform craters from not having enough lending to support new borrowers that eventually move on to another platform.

At this level, the market is valuing LendingClub at a death watch value when the expected annual revenue streams exceed the enterprise value.

 

United Kingdom

 

Agile is The New Super-Power: Meanwhile the USA jostles its way to the Back of the Queue Just as a Revolution Races around the Globe, (Crowdfund Insider), Rated: AAA

In August 2014 Chancellor George Osborne set his stall out clearly stating the UK government’s intention to make London the FinTech capital of the world.  The main instrument? RegTech – the redesign of financial regulation “to be pro-innovation”. Prioritising innovation in order to benefit consumers, with the resulting ‘Sandbox’ concept already being copied and emulated around the world.

Meanwhile the USA seems to be headed in the opposite direction with the recent revelation that the treasury are proposing to needlessly duplicate regulation in a way that threatens the existence of equity crowdfunding in the USA, even before it can get started.

David Burton, Senior Fellow in Economic Policy, The Heritage Foundation: “The Treasury wants to impose AML rules on crowdfunding funding portals even though they are prohibited by law from holding customer funds. Treasury is clearly contemplating a new and presumably complex regulatory regime on marketplace lending and P2P lending. The SEC has proposed two rules to add tremendous new paperwork requirements on private offerings. Moreover, the SEC rules implementing the JOBS Act are needlessly complex. U.S. regulations are a major impediment to entrepreneurship and access to capital.

Today the situation in London and the UK is transformed. Not only are our Financial Regulator (our SEC) actively assisting, working with, startups and firms on new services and financial innovation, but they’ve been explicitly tasked for this – and more. By none other than George Osborne (Chancellor of the Exchequer as his office is known here) who head the UK’s Treasury. It was he in August 2014 that flipped the rule book on innovation.

#RegTech – An Idea Who Time Has Come

How did we get here? Regulation was invented to protect the weak from the strong, now it’s used by the strong to bolster their position and the wealthy to increase their wealth not by industry and innovation  but by preventing it.

Fast is the new Big – and Agile is the new Superpower, Yes, and ‘agile’ (not China) is the new super-power that will transform nations and the world economy (look at tiny Estonia, who’re leading the world with its “e-Residency” service for example – re-thinking world citizenship for the modern age years ahead of anyone else).

Is Lending Club the canary in the coalmine for peer-to-peer lenders?, (The Telegraph), Rated: AAA

“This reinforced my view that the single main issue for P2P lenders in general is fraud risk,” said Cormac Leech, an analyst at Liberum who studies the sector.

Mark Tluszcz, head of venture capital fund Mangrove Capital Partners, has so far given P2P lenders a wide berth.

He suggests P2P lenders could follow the system used in equities markets, where every share transaction is recorded by the FCA, which can use that information to look for wrongdoing such as insider trading.

“Some greater level of oversight is generally good, provided it is not going to just increase bureaucracy, box ticking and therefore cost to the end user,” says Mick Gilligan from Killick & Co. His company invests in P2P loans, and he is also a personal investor.

Choosing which loans to track would also be difficult, as regulators would have to consider doing the same for bank loans and private off-line lending. In addition the market looks very different, as the loans are rarely traded on the secondary market, in stark contrast to shares.

LendInvest Statistics and trends, (LendInvest website), Rated: AAA

£640,333,019 : money invested through LendInvest
2,296 : number of properties funded
£1,034,890,277 : total value of properties funded
£545,500: average loan size
57.29% : average Loan-To-Valuation (LTV)
7.22% : average return rate

lendinvest statistics

Investment Trust Watch: P2P funds in turmoil, (City Wire), Rated: AAA

Baillie Gifford, the Edinburgh-based fund manager that is a big shareholder in Lending Club, although its flagship fund, Scottish Mortgage Trust (SMT +), held only 0.4% of its assets in the market place lender at the end of February, according to figures from the company.

P2P Global Investments , the largest of the high yielding, alternative lending trusts in the UK that buys loans from Lending Club. Its shares fell 7%, or 65p, to close the week at 875p. “It said it did not buy ‘near prime’ loans from borrowers with slightly impaired credit ratings from the platform but only ‘prime’ loans from borrowers with good credit scores. In addition, its management team at Eaglewood Europe pick the loans they want rather than being given them by platforms.” P2P shares ended the week 12.8% below net asset value, a long way from the 20% premium they peaked at the start of last year.

VPC Specialty Lending (VSL +) was the only other debt fund to make a statement on Lending Club, saying it had no exposure to loans from the platform or equity in the business. However, its shares shed nearly 3% to close Friday at 89.25p after it revealed it had stopped buying loans from one US small business lender after a spike in defaults. VSL shares stand at a 10.5% discount below net asset value and a Z-score of -1.5. They yield 8.9%.

Shares in GLI Finance (GLIF), the embattled investor in loan platforms, slid 9% to 28.25p and have fallen 24% since the New Year, although Lending Club is not a platform it uses. The shares yield nearly 18%.

Funding Circle SME Income (FCIF) and Honeycomb (HONY), the two latest debt funds that launched at the end of last year, both trade at small premiums to net asset value. They both source their loans from their parent company, Funding Circle, the small business lender, and Honeycomb Finance, a loan broker. On Friday Honeycomb raised £50 million from shareholders to buy a second loan portfolio from GE Money Consumer Lending.

Businesses To Offer Financial Products Directly As P2P Moves Into New Phase, (Response Source), Rated: A

The new service offered by Crowdstacker will potentially enable qualifying businesses to raise funds via their own website, directly from retail investors. This is made possible by Crowdstacker because it is one of only a handful of P2P platforms operating with full FCA authorisation, and one of only a few platforms able to offer an IFISA.

Ludgate helping record number of businesses, ( Business Quarter), Rated: B

Ludgate was one of the early leaders with P2P funding, starting in 2011, and has built up a wealth of experience in the sector securing funding for more than 200 companies, totalling in excess of £50m. Ludgate Finance completed 22 deals securing loans for businesses totalling over £6.5 million in the first three months of the year making it the most successful quarter since the company was formed in 2007.

 

China

 

China reins in peer-to-peer lending, (Straits Times), Rated: A

In some cities, investment firms and online lenders have been ordered to break leases and close their storefronts. In addition, the registration of all new firms with finance-related names was suspended nationwide last month, said media reports, as more of such firms faltered.

There were 2,600 platforms as of the end of last year, up from 880 at the start of 2014, according to Chinese data firm Wind Information.

Almost 1,000 online lenders, for instance, have been shuttered in the past year.

Mr Zennon Kapron of Shanghai-based financial research firm Kapronasia said China’s larger P2P platforms are now doubling down on internal controls and business practice reviews.

Wealthroll Owner Confesses Fraud Amid Online Lending Crackdown, (Bloomberg) , Rated: AAA

Ponzi scheme in Shanghai that allegedly defrauded more than 25,000 investors of 39.9 billion yuan ($6.1 billion).

Wealthroll Asset Management Co., a Shanghai-based seller of wealth-management products, still had unpaid debt of 5.2 billion yuan owed to 12,800 individual investors, the Communist Party-controlled Jiefang Daily reported Monday, citing police and a confession from the firm’s owner Xu Qin. Xu and 34 other executives from Wealthroll, which was shut down by police in April, were arrested on May 13 for allegedly raising public deposits illicitly, according to the report.

Among the more than 220 partner firms Xu established to raise funds from investors, only one was registered with the securities regulator and all the proceeds went into Wealthroll’s own asset pool rather than into the custodianship of a bank, the report said. The firm paid its sales managers commissions ranging from 4 percent to 400 percent, based on the type of products.

Separately, police busted a pyramid scheme with more than 5,800 victims from 28 provinces who lost millions of yuan, Xinhua News Agency reported on Saturday, citing the Ministry of Public Security. Employees of Beijing-based World Capital Market Inc. posed as investment bankers and venture capitalists to con investors into buying memberships to its services and “digital assets,” with promises of returns between 60 percent and 80 percent within 100 days, the government news agency said.

India

 

 

Need loan? Startups are here to help you!, (The Times of India), Rated: A

“Financial inclusion does not mean having a bank account, it means having access to credit at a moderate rate of interest,” VVSSB Shankar, founder of the city-based P2P start-up, i-lend, said.

Providing insight into the city’s nascent P2P marketplace, Bhavin Patel, co-founder of Mumbaibased LenDen Club, pointed out that it has more lenders than borrowers on its platform from the Hyderabad region. “We have advanced 150 loans. Around 10-12% of the business has come from Andhra Pradesh and Telangana (mainly Hyderabad, Vijayawada and Vizag). The average ticket size of lending is around Rs 25,000 in the south region, which is much higher than the west (Rs 16,500) and north (Rs 8,000),” Patel explained. Lenders can earn interest rates of up to 30% on its platform.

Similarly , Gurgaon-headquartered Faircent founder Rajat Gandhi said that the company too has seen a similar trend of the number of lenders exceeding that of borrowers in the Hyderabad region.”We have 20-22% of borrowers and 18-20% of our lenders from the region. Most of the lenders are HNIs, who understand the platform well, while the borrowers are mainly salaried class, self-employed or small time entrepreneurs,” he added.

 

Asia-Pacific

 

Fitch: FinTech to Bring Big Opportunities, Risks for Asia Banks , (Reuters), Rated: A

Technology firms will play an increasingly important role in Asia-Pacific’s financial services industry, says Fitch Ratings. Large unbanked populations in countries such as India, and the emergence of tech-savvy middle classes in countries such as China, Indonesia and the Philippines, will offer significant growth opportunities for “FinTech” companies.

Australia

 

P2P lender DirectMoney hasn’t enough money to fund all its loan applications, (Business Insider), Rated: A

Fintech lender DirectMoney has more applications for unsecured personal loans than it can service with its funds available to lend. Chairman Stephen Porges says the company remains intensely focused on selling loan to institutions and in developing a funding warehouse.

“To support our excess loan applicants we are establishing a referral arrangement with a trusted lending institution,” he says. He didn’t name that bank but it is reported to be Macquarie.

The 100% online loan management platform has $6.78 million of loans and net assets of $9.10 million.

 

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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