Been a while since I last posted, but have been following the forum and reading.
It seems like this is the only thing I post (when I do), but maybe just maybe one time LC will hear me.
So your investors have seen significant decreases in returns and for quite a few of those investors they are experiencing a loss. HELLO.
Your new credit model is great, but it is not going to change anything until you raise interest rates to the levels they used to be. And I am referring to 09/10 level interest rates. I would have a hard time believing your volume of originations would decrease in any meaningful manner if you raised rates. Most of these borrowers need to refi from a higher rate. A savings on the interest they pay is a savings, I doubt they have an alternative.
Just my .02.
Doesn't seem they are listening, but who knows. There's always hope.
This past quarter LC originations by self-managed individuals dropped from 13% to 9% of total originations.
Managed account originations dropped from 31% to 24% of total.
Banks dropped from 44% to 42% of total.
Only Other institutional rose from 12% to 15% of total.
And, oh yeah, almost forgot, loans originated and held by LC on their books rose from 0% to 9% of total.
LC's stock is trading at this moment at $4.08 per share, down another -2.16% on the day.
It has not traded at this level since 7/12/2016, after the "discrepancies" in mid-May were revealed and the CEO was fired.
Meanwhile LC recently dropped the interest rates of two A subgrade loan categories.
I remember you posted "Once interest rates on A's fell below 8%, I stopped buying A grade loans."
Seems that neither the stock investors nor most categories of lenders are doing well.
Sorry, but I wanted to put my .02 in too. As a consistent nattering-nay-bob-of-negativism my response may do more harm than good.
From where I'm sitting, LC needs to really improve their underwriting and collection efforts. My last statement shows 58% of my YTD interest is negated by charge-offs. I am well diversified in the middle grades. I would rather have fewer quality low-interest loans to pick from than the garbage they are peddling now. The ROI guidance is complete fiction.
I recently took out a peer loan. LendingClub has lots of competition and their rate offered to me was much higher with an origination fee. I went with an alternative. I think you guys have been net savers for too long and don't understand what the consumer loan market place looks like. That's my two cents
I regularly receive mails from discover bank, chase or AMEX offering personal loans. Do not know how their rate compares to LC, but the terms are very similar. I always think traditional banks have stronger client relationship so their marketing cost is lower than LC, but their branches are way more costly. But a lot of us are wrong thinking LC can easily beat traditional banks just by lower operating cost. One side though is that China p2p companies almost entirely rely on Apps for consumer lending, but LC never saw the need to let borrower take out loans using App. Why not?.
I wouldn't care about returns falling if I didn't have any charge-offs!
I hear you guys, but I guess my main point is that LC will never work if people are losing money. Eventually the institutional guys will start to lose money as well. Once word starts getting around that if you invest on LC you will lose money, you will have no new funds coming in the door and all current funds slowly leaving.
I agree that these losses could be cyclical (I only have 3 months in last 8 years with loses), but I do not think trying to improve underwriting or the credit model is going to work. You have to get interest rates back to where they were so that the losses can be absorbed.
I have said it before and will say it again, once LC started focusing on going public and crazy growth, the loan quality went down and the interest rates followed. More risk and less return, it will never work.
I will add that it seems like most of the loans I am selling off over the last year are loans that have repaid 50-75% of the principal balance, compared to a few years ago it seemed like most loans I would sell off only had paid bacK 10-20%, anyone else noticing this? Problem is I used sell off a lot fewer loans and now I am selling off a ton.
For what its worth, here is an update of the a chart @Fred93 has presented before (and is mentioning in the post just above this one, from the downloadable chargeoffs spreadsheet), suggesting 2016 Q2 and Q3 are the worst and some improvement since then, although there is some grade dependency.
It look like 2012 Q4 was that last *great* time to be an investor in the higher risk grades. I didn't plot earlier than that because volume was so thin (only 432 notes in 2011 Q4, grades D-G, for example, increasing to 753 in 2012 Q1)
Thanks Sensij. Another thing you can see from those charts is that not enough time has elapsed to really know how 2017 loans are going. It looks like things are headed in the right direction, but its a noisy data series, so we really would like to see more data. Just have to be patient.
No doubt 2015 and 2016 are bad vintages.
I guess what I do not understand is how low of a return is LC willing to advertise before something changes. I am referring to the banner they post all over the place. Attached.
It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6. How low will they go, before they realize people are not willing to invest in this asset class for that return.
In hindsight, I'd have been better served by investing in a high yield corporate bond ETF (like JNK). I'd gotten higher returns and it's very liquid asset. I'm afraid I'm going to pass away in the next 3-4 years and leave my wife with a mess of notes left in Lending Club. That was not my intent when I started with Lending Club. My bad, sorry girl.
I spent a few hours today and put together a summary of some of my LC data to shed some light on what I have been seeing.
I completely understand this is not a perfect analysis and does not answer all questions.
Few things I want to point out. In the Sales + Charge Off Data section, the sales + charge offs by year are based on the year the loan was purchased. So a loan purchased in 2013 and sold in 2014 is listed in the 2013 row. In the Purchases Data section, the purchases are for that year and the interest amount represents the interest in that year. The Gain section is not that great, because it is not comparing the vintages correctly. Meaning it is comparing sales + charge offs data by vintage to interest in the calendar year, not interest by vintage. I do that analysis at year end and did not feel like doing it, sorry. But this does allow you/me to look at sales + charge offs of a specific vintage compared to purchases in that year. Purchases represents all purchases (includes reinvestment of payments). No, I do not have $1.8M invested.
Looks like 2016 is going to be way worse than 2015.
So I will say this again, I still do not understand how people are losing money. I currently have an average interest rate of 11.57%, so a loss % of 4.5% still represents a good return. The reason I complain at all, is because I used to have an average interest rate of 12.5%-13% and a loss % of 2%. I understand that as my portfolio grew I would divert to the mean, but I could live with my current loss % if the average interest rate would increase.
I will try to answer questions, but this analysis may not allow for answers to all questions.
- please show the curves for 2017 - Perhaps even worse.
The good news is that Goldman wont short lending club when it collapses, because they are in the same market.
Late night thoughts of mine.
PS . I'm No longer a true believer, trying to weigh the options to get out!
Mountain America Credit Union just upped their 5-year yield to 2.8%:
https://www.depositaccounts.com/banks/mountain-america-cu.html4-6% returns at LC with unfavorable tax treatment is not enough to compensate me for the risk when I can CD ladder at 2.8% risk-free yield. I'm not hot money, I've been here for years. But things have changed pretty substantially. I stay around because I am hoping there is some canary in the coal mine that signals we've somehow turned a corner. I have yet to see anything convince me otherwise. I'm worried the macro economy will hit a snag and we'll take another step downward on the sliding return ladder.
As Sean has pointed out, who knows if it will even be 4-6 with the downward trend we are seeing. There is enough uncertainty in the direction of returns, and certainly a high degree of volatility, that LC's interest rates should be higher to compensate. Yet they don't move. Retail lenders are probably a lot less "hot" than institutional money. But we're so insignificant now in the grand scheme of things, I get why we wouldn't register on LC's radar.
I like the visual representation. Part of the issue to consider is that we naturally assume prior LC returns are the benchmark, but they could have been too high to begin with. As a result, it may be interesting to separate out impacts from credit quality and impacts from changing interest rates. I imagine that is much harder to calculate though
Like storm, I have seen my interest received offset by losses. Since inception, I have lost 70% of the interest received to defaults. I was using auto invest but no longer; as I accumulate cash balance, I withdraw it. I understand I should expect some losses but this is a little much for me.
I think LC does not do enough to collect from those who default. Most of mine were not very far into their payments when they defaulted.
For the 100th time. They need to FIRE the CIO. It's that simple. They need to fire the CEO. That's even simpler.
They're back to advertising how it's virtually impossible to lose money again.
Of course the buried footnote says that doesn't include F or G notes. I guess since they just stopped offering those notes, they think it's ok to pretend previous losses to investors never happened. It's misleading at best but I think it's more securities fraud than anything else. Lending Club's management has been made up of just the worst kind of people.
I would like to think I could get my original investment back but that now seems out of reach. I'm at 1.1% returns. Ally is beginning to look really good.
Down 18% today. That's some rocking C-Suite you got there.
Re: Today's happenings.
So wait a second, you are telling me that your revenues/forecasts are decreasing at the same time a majority of your investors are have seen their returns decrease. Man, I wonder if the two are related. Who knows, anytime you are ready to get back to where you were just let me know Mr. Sanborn.