For Lending Club, Ain’t Nothing But a E,F and G Thang

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Investing in a G-grade Lending Club note is projected to earn 313 basis points less than what was projected six months ago. The company published new projected investor returns in their 8-K filed on Friday that showed an expected return of 9.06% on G-grade notes. That’s down from the 12.19% figure they published in an April filing. F-grade note projections decreased by 155 basis points. For Es, it’s down 28 basis points.

“Rate increases are concentrated in Grades F and G with marginal changes in other grades,” the company announced on Friday while reporting a weighted average 26 basis point interest rate increase. But will rate increases save the Fs and Gs from plummeting returns?

As G is the most risky grade, that means the most risky borrowers on Lending Club are projected to earn investors only 9.06%. Is all that risk worth it? Or perhaps more importantly, is that projection even realistic? Six months ago, the riskiest class was projected to earn 12.19%. Nothing has really changed from a macroeconomic standpoint since then, so it’s difficult to even pinpoint why investors should expect a 25% lower return on the riskiest borrowers all of the sudden or why they should be confident that it won’t get worse.

From their April 2016 8-K

April 2016 Investor Projections

From their October 2016 8-K

October 2016 Projections

On the plus side, projected returns on As through Ds are up.

Last modified: October 15, 2016
Sean Murray

Category: Marketplace Lending

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