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Author Topic: LC raises rates 10/2016 and updates loss forecast #s


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LC raises rates 10/2016 and updates loss forecast #s
#1: October 13, 2016, 11:00:00 PM
It's a big, imprecise-looking cut - gonna impact volume - but at least they're acting.  Hopefully will optimize cut to better target ONLY the problem population, not cut off an entire arm because one finger gangrenous...  In general, a step in the right direction, but just a start.

ETA:  Unless it *was* a very precise cut and that much origination volume was actually affected/properly in scope for these changes. :o
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LC raises rates 10/2016 and updates loss forecast #s
#3: October 13, 2016, 11:00:00 PM
Am I reading this right?

Projected investor returns on G-grade loans have dropped 313 basis points between April and today...
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T
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LC raises rates 10/2016 and updates loss forecast #s
#5: October 13, 2016, 11:00:00 PM
that's terrible! that's a huge shift.
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LC raises rates 10/2016 and updates loss forecast #s
#6: October 13, 2016, 11:00:00 PM
The 8-K that LC published today, contains a letter to investors, signed by LC's Chief Investment Officer Siddhartha Jajodin.  I was pretty disappointed by this announcement.  The letter is heavy on spin.  Unfortunately, it doesn't contain anything that would reassure us that he actually knows what is going on.

It does make two serious admissions tho.  At least that's progress.

He writes
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LC raises rates 10/2016 and updates loss forecast #s
#7: October 14, 2016, 11:00:00 PM
Okay Fred93, I buy, and follow, every bit of your analysis. I think you're correct on all fronts, which is worrying for me as an investor. I expect another rate bump up in a couple of months, either due to the Fed increasing interest rates or higher-than-predicted delinquencies, possibly both.

But I suppose what I'm most interested in is what you plan to do? Are you on the sidelines, are you continuing to reinvest, or are you liquidating your portfolio? This question, of course, is open to anyone really. As for myself, I started reinvesting about 2 months ago. But I'm now thinking I need to hit the pause button and wait to see how much rot is in the system.
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LC raises rates 10/2016 and updates loss forecast #s
#8: October 14, 2016, 11:00:00 PM
I hate to say this but the first time I ever saw Scott Sanborn speak in person was a few weeks ago at a conference and my impression was that he is in way over his head. Compared to the confidence that Laplanche used to exude, I don't think Sanborn has what it takes to even pretend that there is a bright future. I walked away thinking the company's best days were well behind it.
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LC raises rates 10/2016 and updates loss forecast #s
#11: October 14, 2016, 11:00:00 PM
I will say I am impressed LC sent an e-mail to both my taxed and IRA account e-mail addresses pointing out that platform investors ought to read this.  I hope they continue doing this as well as separating the shareholder information from the platform data.  They could have just made another SEC filing and hope nobody noticed.

Thanks, as always, Fred93.  I'm not much of a numbers guy (or letters for that matter), but your charts speak volumes.
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LC raises rates 10/2016 and updates loss forecast #s
#12: October 14, 2016, 11:00:00 PM
I know there are others posting in this topic that have been investing for years, so I am not the only one who has noticed the below.  I started investing on LC in Dec 2009. 

Everyone is correct and LC is finally starting to admit that defaults/charge offs are increasing across all grades.  While this is not a good thing, back in the "good ole days" say 2010-2011 (maybe even thru 2012), it was not as big a deal as it is today, because the interest rates were so much higher than they are today. 

2010 - A1 - 6.03%
2016 - A1 - 5.32% (and that is the new updated rate)  That is a 12% decrease and again that is the updated 5.32%.

2011 - B1 - 9.91%
2016 - B1 - 8.24% (again this is the new updated rate) 17% decrease

I am not saying those were the rates for the entire year, but just examples.  I used to make my bread and butter returns in the A and B grade loans because defaults were so low and interest rates were decent.  I am also not saying other grades have not seen increases, but as someone who preferred high quality loans, I have seen my net return decrease from low 10% to low 8%.

I have also noticed the "quality" of borrower who received these lower interest rates over the years has deteriorated.  So overall LC has decreased interest rates and lowered the quality of borrower who gets the lower rate loans.  As investors we have been forced to take more risk for less return. 



 
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LC raises rates 10/2016 and updates loss forecast #s
#13: October 14, 2016, 11:00:00 PM
Fred93, I think you are asking the right questions but may be making a simple mistake.  You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness. 

Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO. 

And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

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LC raises rates 10/2016 and updates loss forecast #s
#14: October 14, 2016, 11:00:00 PM
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