Lending Club: Road to Investor Confidence is Paved in Negative Returns

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It’s been an eventful Tuesday for Lending Club. The company held its previously adjourned annual meeting where it upgraded Scott Sanborn’s status to permanent CEO, appointed temporary executive chairman Hans Morris as Chairman of the board and slashed 179 jobs. 

The new management has tasked itself with restoring  investor confidence that’s necessary after Sanborn said that its Broad Based Consumer Credit fund will see its first negative return after five years of performing well. It is the largest inhouse portfolio for the company with regular returns of 0.5 percent. Subsequently,  the board has established new policies prohibiting investments in ecosystem partners that invest in lending club loans and also imposed restrictions on investors requesting redemptions worth $442 million in its consumer credit fund.

An internal review also discovered that Renaud Laplanche and three members of his family borrowed $722,800 in 2009, which was not reported as a personal investment.

Lending Club hired an independent firm to assess the valuation of its marketplace assets and found assets held by six private funds to be inconsistent with GAAP standards.

Loan originations fell by a third in Q2 2016 compared to the previous quarter but in a necessary attempt to appease investors, the company has committed to spend $9 million in the current quarter on investor incentives and another $20 million on employee retention, due diligence and advisory relationships. Earlier this month it purchased $19 million of its own loans until it rebuilds its funding base.

It resolves to be back on track and resume revenue and EBITDA growth by the first half of 2017. As if these troubles weren’t enough, it also faces mounting pressure rising from Britain’s exit from the European Union and the market volatility that followed. This could cause hedge funds and loan buyers to retreat at a time when the beleaguered lender is trying to score funding deals with hedge funds.

Sam Hodges, CEO of London-based Funding Circle definitely feels the burn. “We have to hunker down and recalibrate our growth plan and credit models to account for how the U.K. economy will be more stressed in the near term,” he told WSJ.

Click here for the Lending Club timeline.

Last modified: April 20, 2019
Srividya KalyanaramanSrividya's work has appeared in publications like Money magazine, Advertising Age, FirstPost and The Economic Times. She has also dabbled in business intelligence solutions, and holds a Masters degree in Business and Economic Reporting from NYU.

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