Daily News Digest Featured News

June 30st 2016, Daily News Digest

News Comments

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United States

  • Stone Ridge purchases $200mil in Lending Club loans and is eyeing $1 billion worth of loans. A good vote of confidence to help support Lending Club.
  • A quick recap of the latest updates on Lending Club around the annual shareholder meeting.
  • Followed by a great article discussing Lending Club’s revenue growth vs analyst’s prediction, split by origination and servicing.
  • A link to the actual 8-k filing by Lending Club showing a goodwill write-down of about $20 to $40 million on the Springstone acquisition.
  • DV01 raises $7.5 million. dv01 competes with PeerIQ, Orchard and Jumla.
  •  Very interesting new channel for p2p unsecured personal loans : home improvements. Prosper and Upstart share that 6% and 10% of their borrowers planned to use funds for home improvements. Upstart’s default rate was 3-4% range in 2015.
  • US mortgage rates falling to historic lows since Jan 2016, at 3.21% for 30-year fixed.
  • Realty Shares funded $15.6mil in real estate deals in May 2016.

United Kingdom

  • New P2p lender, JustUs, launching, with a £26m valuation, raising £5.35m, including £1m via crowdfunding platform Crowdcube.  Sir John, a founding partner of Saatchi & Saatchi, has invested in the business and leads the brand team for JustUs
  • Brexit continues to threaten UK’s funding for companies and projects. Funding Circle and Octpopus call for British Business Bank to step in to replace EIB.
  • In June , despite Brexit, UK’s Nationwide House Price index raised up by 0.2% , for a 5.1% to date in 2016.
  • LendInvest halts second (mezzanine) mortgages due to Brexit unknowns.
  • P2P Global Investments continue share buy back program defending 20.3% discount and bringing it back to 17.3% by buying 0.18% of shares issued.

Sweden

  • Klarna made $20mil profit in 2015. H1 2016 predicted around $20mil as well, H2 2016 expected to be around $0 due to investment in expanding to the US.
  • Klarna co-founder Niklas Adalberth plans sale of his 13 pct stake at 20 bln SEK ($2.4 bln) valuation.

China

  • Very long and complete article about  Soul Htite’ Dianrong.com. Their plan of using Blockchain for transparency, and using 2 Chinese banks will be used as custodian of funds.  Comparing the p2p market vs the groupon-like market in China. Entirey worth a read.

News Summary

United States

Stone Ridge Loan Purchase Gives The Market A Shot Of Confidence In LendingClub, (Benzinga), Rated: AAA

tone Ridge Asset Management is eyeing a purchase of $1 billion worth of loans from LendingClub Corp.  Bloomberg, citing “a person with knowledge of the matter,” noted Stone Ridge’s large purchase could help restore confidence in LendingClub’s business among concerned investors.

Bloomberg added that there are other investors who are also interested in purchasing loans from LendingClub. The company’s newly named permanent CEO Scott Sanborn was quoted as saying on Tuesday during a 30-minute company presentation that the company’s assets “generate provides very attractive risk-adjusted returns and that hasn’t changed” and that “different investors are coming back at different rates.”

Latest Updates from Lending Club Post 2016 Shareholder Meeting, (Lend Academy), Rated: AAA

Comment: A recap of the last few days of news.

The board of directors officially named Scott Sanborn as Lending Club’s CEO and President. Scott has been with the company in various leadership roles since 2010. He began as the Chief Marketing Officer and starting in 2013 took on the role of Chief Operating Officer.

Two previously unknown items were brought to light.

First, six funds that were managed by Lending Club’s subsidiary LC Advisors (LCA) were not valuing assets consistent with generally accepted accounting principles. This affected the net asset values as well as the monthly return figures for the funds. Lending Club is reimbursing investors in these funds. Subsequently, Lending Club enlisted the help of an independent valuation firm to make changes which includes an independent governing board.

Second, Renaud Laplanche and three family members took out loans in December 2009 totaling $722,800 to inflate origination numbers. Back in 2009 Lending Club still reported loan origination numbers on a monthly basis. NSR Invest shared with us that originations in November 2009 were $6,848,875 and December 2009 came in at $7,126,475. This is a difference of $277,600 which means December would have been a down month but for these loans from Renaud and his family. Lending Club noted that they are confident that there are no other situations where loans were inappropriately originated after December 2009.

Not surprisingly Lending Club shared that originations for Q2 are slated to be one third lower than the first quarter of 2016. It’s important to note that the Lending Club debacle began mid-quarter so this estimate doesn’t show the full impact to the platform. It’s possible that Q3 2016 originations could come in even lower than Q2 depending on investor confidence.

Lending Club also announced several actions they have recently taken including:

  • Increasing testing of data changes.
  • Increasing compliance and oversight resources.
  • Aligning business and control functions into a better risk management structure.
  • Retraining employees on code of conduct and ethics and reinforcing importance of a high compliance culture.
  • New policies on pledging Lending Club shares.
  • Prohibiting the company from making investments in ecosystem partners that invest in Lending Club loans.

To attract investors, Lending Club has offered incentives to investors which will total approximately $9 million.

Lending Club continues to believe the marketplace model remains efficient.  However with their strong balance sheet, they are open to investing in their own loans with the intent to resell them once demand stabilizes. By the end of June, Lending Club will have about $40 million of loans on their balance sheet which equates to approximately 2% of originations.

While Lending Club still has a lot of work to do, it is nice to see at least their internal investigation triggered by Renaud Laplanche’s departure come to a close. We still have to wait to hear about theDOJ Grand Jury subpoena as well as the SEC investigation. Now that Lending Club officially has a new CEO and have put measures in place to prevent issues in the future, the company can begin to shift the focus to moving forward. Expectations for Q2 2016 have been set but we will need to wait and see if and when they can get back to where they once were.

Did LendingClub Just Cap Growth?, (Seeking Alpha), Rated: AAA

The stock rallied 7% due to the details released for the annual stockholder meeting to close at $4.61, but LendingClub still trades below the recent cap at $5.00.

LendingClub produced record marketplace loan originations of $2,750 million during Q1. The number was 68% growth over the prior year period.  Goldman Sachs  forecasts  that Q2 loan originations would grow 5% YoY.

the online platform predicts that volumes will be roughly one-third lower than the Q1 levels. The number amounts to the neighborhood of $1,833 million in Q2 loan originations. The volumes are actually down 4% from the prior year levels of $1,912 million. The end result is that the Goldman Sachs numbers were actually way too bullish.

Lending club growth over time

The other revenue sources are likely to grow slightly from Q1 levels as the service portfolio will see peak volumes in Q2.

Lending Club servicing portofolio recurring revenue

Under this scenario, revenues hit at least $105 million during the quarter. The lowest analyst revenue estimate is $107.5 million questioning whether the investment community is realistically prepared for the actual results.

The encouraging part is that LendingClub expects to only hold $40 million in loans held for sale at the end of Q2. The number should help keep the cash balances over $800 million. In reality, the balance is closer to $850 million as this $40 million investment is in low-risk loans that should actually earn the company income.

The one encouraging piece from the annual shareholder meeting call was the discussion of an asset manager that has invested $200 million on the platform since the start of May and plans to invest $1 billion this year. Other banks are taking longer to complete due diligence, but LendingClub provided some hope that all the original institutional investors would eventually return.

In those regards, the stock trades at the reasonable enterprise valuation of 2.5x revenues.

Takeaway

The upside appears capped in LendingClub through the summer. Investors can obtain solid valuations buying the stock below $5 over the next few months, but the online lending marketplace still needs to prove that the new CEO has the capability to reinvigorate the growth needed to spur the stock to higher valuations.

Lending Club: Here is the 8K Filed Alongside Shareholder Meeting, (Crowdfund Insider), Rated: AAA

The 6/22/2016 8-K filing for Lending Club.

Sanborn stated their intent to do a Goodwill write-down of between $20 and $40 million on their Springstone acquisition. Springstone was acquired in 2014 for approximately $140 million in cash and stock.

Sanborn said it was their goal to rebuild confidence without incentives in the 4th quarter. He predicted the company would resume EBITDA and Revenue growth in first Half of 2017.  Meanwhile, the online lender continues to work on improving processes and controls.

FinTech Analytics Platform dv01 Brings Transparency And Professional Portfolio Management to Marketplace Lending, (PR Newswire), Rated: AAA

Founded in 2015 by Perry Rahbar, dv01 has raised $7.5 million of seed funding from Quantum Strategic Partners Ltd., Leucadia National Corporation, and Pivot Investment Partners. The company has applied the funding toward expanding its engineering team and launching its portfolio management software. It will now focus on its securitization offering and scaling its solution to expand into the $12 trillion consumer and mortgage lending markets.

dv01’s current technology aggregates performance data from lenders including Lending Club, Prosper, Marlette Funding, and CommonBond. By normalizing data across lenders, dv01 simplifies comparison and analysis, enabling institutional investors to study individual loan performance and quickly detect issues within portfolios.

To date, dv01 has provided investors real-time insight into more than $23 billion of loans from the biggest marketplace lenders, including Lending Club and Prosper. Headquartered inNew York, dv01 is committed to expanding.

How Online Lenders Can Finance Home Improvements, (Wall Street Journal), Rated: AAA

Financing from the peer-to-peer lending sector—with companies like LendingClub, Prosper and Upstart—can be used to cover upgrades at home.

Now, at least one online-loan marketplace, San Francisco-based Prosper, is actively encouraging loans for home improvements, recently announcing a partnership with HomeAdvisor.com, a national website that links homeowners with contractors.

Unlike a mortgage or home-equity loan/line of credit, marketplace loans don’t have to be secured against a home or other collateral, and the peer-lending websites have less stringent credit-qualification requirements than banks and other traditional lenders. This may appeal to borrowers who can’t qualify for a home-equity loan or line of credit.

Marketplace-lending volume represents less than 1% of overall home-related consumer lending, but it fills a niche for people who may be recovering from low credit scores or be self-employed without an easy-to-document income stream, says Guy Cecala, CEO and publisher of Inside Mortgage Finance.

Only 6% of Prosper borrowers stated on their application that they planned to use their loan for home improvement between July 2009 and March 2016, but the company saw its home-improvement loans double from 2014 to 2015.

At Upstart, less than 10% of its borrowers stated that they planned to use funds for home improvement, Mr. Girouard says. Upstart reports it has had double-digit, month-over-month growth since its May 2014 launch, with overall volume topping $400 million. Loans range from $1,000 to $50,000, but the average amount is $12,000 to $13,000, Mr. Girouard says. The average borrower is 28 years old, and only 20% of Upstart’s clients own homes, though renters do furnish and even sometimes renovate, he adds.

At Prosper, 7.1% of loans it serviced between July 13, 2009, and March 31, 2016, were referred to a collection agency, according to its prospectus. Upstart’s 2015 default rate was 3% to 4% in 2015, according to its prospectus.

LendingTree Report: Brexit Sends Mortgage Rates into Freefall, (Stock Transcript), Rated: A

A new report by LendingTree®  finds that mortgage rates offered by lenders on LendingTree’s network have fallen 14 basis points since the United Kingdom voted to leave the European Union. In response, LendingTree has seen a substantial increase in refinance requests as the dramatic market reaction to Britain’s exit from the EU continues to drive down mortgage rates. Requests for purchase mortgage loans have also increased since the Brexit news.

“This historic event has created an opportunity for US borrowers to lock in some of the lowest interest rates we’ve seen since December 2012,” said Doug Lebda, founder and CEO of LendingTree. “We’re seeing 30-year fixed-rates as low as 3.21% APR, which means there is a massive window of opportunity for borrowers to save.”

Since January of this year, average offered interest rates have fallen from 4.28 percent to an average of 3.73 percent following the Brexit news. Last Thursday, June 23, 2016, average offered interest rates for a 30 year fixed-rate mortgage were 3.84 percent. “On a $275,000 loan, a 55 basis point decline in interest rate translates to roughly $31,500 in potential savings on payments toward interest,” said Lebda.

Lending Tree mortgage rates

RealtyShares Finds New Chief Product Officer In Tech Expert Simon Morris, (Press Release), Rated: B

Today, RealtyShares has announced the hiring of our new Chief Product Officer Simon Morris. The former General Manager headed multiple divisions at BitTorrent, and now joins our CTO Gene Linetsky in bringing new technological advances to the platform as they look to streamline the underwriting process for Sponsors and give the company’s 20,000 investors a transparent, user-friendly real estate crowdfunding experience.

RealtyShares is growing at a rapid pace after completing a $20 million Series B round in February. Last month (May) we funded $15.6 million real estate deals, our highest monthly funding total to date. Just Tuesday we announced $28.1 million in funding for projects in Florida.

“I chose to join RealtyShares because I’m interested in the dream of what this can be,” Morris said. “I’m very impressed with the group of people who are here and the passion they have for what they’re doing. The opportunity to build a data-driven platform to scale is very exciting and technology is an integral part of that vision.”

 

United Kingdom

New P2p Lending Platform Unveils Fundraising Plan, (Insider Media Limited), Rated: AAA

A peer-to-peer lender has launched in Alderley Edge and unveiled plans to raise £5.35m, including £1m via crowdfunding platform Crowdcube, in a move that values the business at £26m.

JustUs, which provides peer-to-peer consumer loans and secured lending, is the brainchild of financial services entrepreneur Lee Birkett and is backed by veteran ad agency boss Sir John Hegarty and start-up specialist Thomas Teichman. Meanwhile, Thomas Adalbert has left a role as a global principal in fintech at Google to invest in and join JustUs as chief marketing officer.

The crowd and institutional fundraising will value the business at £26m. The bulk of the proceeds will be used for an advertising campaign to drive public awareness and membership.

JustUs is the evolution of Birkett’s established and Financial Conduct Authority-regulated peer-to-peer lending platform eMoneyUnion.com.  About £2m has already been invested in the platform since inception.

Sir John, a founding partner of Saatchi & Saatchi, has invested in the business and leads the brand team for JustUs. This team will devise a multimillion-pound advertising campaign for the platform in the coming months.

JustUs is expecting to deliver a loan book of around £254m by year four of its plan. During beta testing of the site, it attracted £130m of borrower applications from a marketing spend of £150,000.

“This, on the other hand is going back to the roots, allowing you to help out other people through lending money. The alternative finance sector is evolving and growing and that is why I have given up my job with Google to invest my time and my money in to JustUs.”

Brexit threatens UK project funding, (BBC), Rated: A

The fallout from last week’s vote to leave the European Union is rattling business and finance, far and wide. One aftershock is being felt at the European Investment Bank. The EIB is owned by the 28 member states of the EU. The UK, alongside Germany, France and Italy, is among its largest shareholders, with about 16%.

The bank provides finance to a wide range of projects around Europe, with a particular focus on areas like infrastructure, social housing, renewable energy and education. It invested £5.6bn (6.7bn euros) in the UK last year and has ploughed £42bn (50bn euros) into the country over the last decade.

The good news is that the EIB says that its recent deals in the UK should proceed as planned. But the EIB told Newsnight that the uncertainty created by the vote to leave the EU means that some UK projects, which previously would have stood a good chance, are now less likely to be approved.

Some companies are already falling victim to that. Funding Circle, a London-based company that provides financing to small businesses, recently received £100m (120m euros) from the EIB.

The hope was that would expand into a £1bn (1.2bn euro) programme. But Funding Circle, after discussions with the EIB, now believes that is unlikely.

Meekings calls on British Business Bank to step up, (Alt Fi News), Rated: A

Funding Circle Co-Founder James Meekings sees the British government, and the medium of the British Business Bank (BBB), as the solution to EIB’s unlikely investment moving forward.

Chris Hulatt, CFO and Founder of Octopus Investments, was also quizzed by the panel. He said that we might well also see the EIF pulling back from supporting aspiring UK venture capital funds in the wake of the Brexit vote, and that the UK government may need to step up to help plug this gap.

Hulatt said that 30-40% of the CEOs of Octopus’ investee companies are from outside of the UK. The Leave vote casts doubt on whether such entrepreneurs will continue to gravitate towards the UK. Furthermore, he stated that 90% those investee companies’ tech teams are made up of people from the EU. Meekings said that 50% ofFunding Circle’s tech team is made up of EU nationals. Both he and Hulatt called for guidance from government over this potential risk to their businesses.

Nationwide House Price Index Reports 0.2% Raise in June; LendInvest Co-Founder Responds, (Crowdfund Insider), Rated: A

Despite the recent news that the UK has voted to depart from the European Union (EU), the National House Price Index announced the house prices have raised up by 0.2% this month, with an annual house growth now standing at 5.1% (average price £204,968).

LendInvest does not see any sort of crisis. Specifically in UK property:

“Overnight the fundamentals of the property market have not changed – demand still strongly outweighs supply, the country remains in the grip of a huge housing deficit providing the foundation for the market, and property will always be an attractive asset class.”

LendInvest halts second charge lending, (Mortgage Strategy), Rated: AAA

LendInvest has paused second charge lending due to Brexit uncertainty.

(Definition for our American readers: Second charge or second mortgages. Second charge mortgages are often referred to as second mortgages because they have secondary priority behind your main (or first charge) mortgage. They are a secured loan, which means they use the borrower’s home as security.)

The lender says it will honour its existing pipeline of deals, and that no cases have been dropped or cancelled due to Brexit.

“Our decision to tighten lending criteria for higher value cases and pause new second charge loans reflects industry caution after the market shock of last week. Until more data becomes available about prime sales in the new market environment, redefining our lending criteria is the most responsible and prudent course of action.

P2P Global Investments continues buybacks, discount narrows, (Alt Fi News), Rated: AAA

The P2P Global Investments trust has bought back its owns shares for the third day running this week amid the Brexit-induced volatility in global stock markets.

AltFi broke the news on Tuesday that the largest investment trust offering exposure to the P2P/marketplace lending space had used the harsh sell off in global markets to defend its discount of 20.3 per cent and buy back its own shares. The move has so far worked as the discount today is now 17.3 per cent.

Source: Google
Source: Google

While the fund’s management bought just a small amount on Monday of 23,421 ordinary shares, it has followed on Tuesday with a further purchase of 45,693 and 87,662 yesterday. This means 156,776 ordinary shares are currently held by the company as treasury shares. There are a total 86,306,803 ordinary shares in issue.

Buy-backs have been a hot issue for investors in the investment trust. Many urged it to buy back shares to defend the share price from moving to a wide discount following its slide from a near 18 per cent premium in 2015.

The lead manager of P2P GI Simon Champ made the argument in an exclusive interview with AltFi recently he believed the fund’s cash pile of £400m was better spent on negotiating strategic loan purchases from platforms rocked by the Lending Club fiasco than it was from buying back shares.

Sweden

Co-founder eyeing sale of stake in payments firm Klarna

Daily Svenska Dagbladet (SvD) says Klarna co-founder Niklas Adalberth plans sale of his 13 pct stake in payments firm, citing unnamed sources ** SvD says Adalberth, who declines to comment to the paper, offering shares to investors at total price 2.6 bln SEK, valuing all of Klarna at 20 bln SEK ($2.4 bln)

Swedish payments firm Klarna posts 2015 mln op profit

Swedish payments firm Klarna posted a 170 million Swedish crown ($20 million) operating profit in 2015, Swedish business daily Dagens Industri (DI) reports. ** DI says the company’s annual report showed it made a 163 mln SEK profit in the first half of the year. However, earnings were just 7 mln SEK in the second half of the year as it invested in new products and expanded to new markets including the United States.

China

P2P has a bright future, insists Dianrong founder, as he plans IPO within two years, (South China Morning Post), Rated: AAA

Soul Htite, the founder and chief executive of China’s peer-to-peer lending platform Dianrong.com, is looking to list the startup within two years. Founded in 2012 by Htite and former lawyer Kevin Guo Yuhang, Dianrong landed China’s largest P2P fundraising deal to date in August last year — US$207 million in a series-C round from investors including Standard Chartered.

“In New York you get a very good valuation,” he says, before adding , “but the story of Dianrong is China, so it might be better to list in Hong Kong.”

Analysts estimate the company could realistically raise between US$300 and US$500 million, based on the valuation of Yirendai’s flotation, which became China’s first New York listed P2P last year.

Dianrong is now the country’s third ranked P2P company, according to a report by online lending portal Wangdaizhijia and consulting firm Yingcan, behind Yirendai and China Ping An Group’s platform, Lufax.

The business has three million lenders, of which 500,000 are active, and Htite expects total lender numbers to grow to 10 million in the next two years.

“I don’t want the story of China’s baby formula producers to be repeated by P2P firms,” Htite said, referring to the series of food safety crimes involving domestically produced dairy products.

One way, he says, is to ask every P2P platforms to have a custodian bank with which borrowers must have an account. With that in mind, Htite says Dianrong is about to announce a cooperation with two Chinese commercial banks, which will become its own custodians.

The company has also started researching the use of blockchain rechnology, and has built its own network — the first Chinese P2P company to do so, he claimed. “No one can cheat under the table,” Htite said, adding regulators prefer companies that regulate themselves, especially in a newly emerging industry.

His argument for ongoing government support for the P2P industry, is that it is a lot more transparent than other components of China’s shadow banking system, and also helps the economy grow on domestic demand, rather than exports.
But when the ongoing natural industry adjustment ends, only the winners will be left standing, he insists, just as they were when the country’s “groupon-like” group-buying websites first mushroomed, then died away.
They peaked at over 5,000. But only two of those were left after the dust settled, and they merged last year to become just one, Meituan-Dianping.

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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