Author Topic: Time for LC to Raise Interest Rates?  (Read 12073 times)

Rob L

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Time for LC to Raise Interest Rates?
« on: October 02, 2015, 11:57:14 AM »
The high yield corporate (junk) bond ETF symbol HYG has fallen over the past few months and is now up to a weighted avg YTM of 7.65%. This just passed the highest level reached during the correction of 2011, and you have to go back to the great recession to see a higher YTM. If the market is pricing risky but secured corporate loans at the highest rates in years, shouldn't unsecured loans to individuals be similarly priced? If bad things happen we could be in for a rough ride (as a few have mentioned on this forum recently).

LC raised rates between mid 2011 and mid 2013. Since then rates have been significantly lowered.
https://www.lendingclub.com/info/demand-and-credit-profile.action
Time for LC to begin raising them again?
Are HYG or other investments beginning to look more attractive than LC, or are they too volatile to be considered LC alternatives? If not HYG, then what?

AnilG

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Re: Time for LC to Raise Interest Rates?
« Reply #1 on: October 02, 2015, 02:21:07 PM »
You are comparing a liquid investment (HYG) with illiquid investment (LC loans). The YTM on HYG has gone up because the price of HYG has gone down. The interest rate of corporate bonds held in HYG portfolio hasn't changed. If LC Loans were as liquid as HYG, the price of these LC Loans would have gone down too. If you want to compare HYG YTM with LC Loan YTM, discount the current value of your LC Loans portfolio by same percentage as the HYG price drop and then compare the YTM between HYG and LC Loans.

The high yield corporate (junk) bond ETF symbol HYG has fallen over the past few months and is now up to a weighted avg YTM of 7.65%. This just passed the highest level reached during the correction of 2011, and you have to go back to the great recession to see a higher YTM. If the market is pricing risky but secured corporate loans at the highest rates in years, shouldn't unsecured loans to individuals be similarly priced? If bad things happen we could be in for a rough ride (as a few have mentioned on this forum recently).

LC raised rates between mid 2011 and mid 2013. Since then rates have been significantly lowered.
https://www.lendingclub.com/info/demand-and-credit-profile.action
Time for LC to begin raising them again?
Are HYG or other investments beginning to look more attractive than LC, or are they too volatile to be considered LC alternatives? If not HYG, then what?
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rawraw

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Re: Time for LC to Raise Interest Rates?
« Reply #2 on: October 02, 2015, 07:49:37 PM »
I seriously doubt LC would have gone down.  Just because high yield debt is a lot of oil companies and their debt is now being readjusted for their current level of risk, I don't see why LC would increase rates.  Just because two things yield the same doesn't mean they are comparable.  The rates on unsecured consumer loans offered by lenders would be the comp and those rates have not materially changed.  The credit risk on a secured junk corporate and credit risk on a mostly prime consumer portfolio is not the same at all. 

Fred

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Re: Time for LC to Raise Interest Rates?
« Reply #3 on: October 05, 2015, 02:33:30 AM »
LC's interest rates are affected more by lender-borrower balance than by the Fed's rates.

I think the balance has been tilted toward lender for a while, causing LC to bring more borrowers by lowering the rates.

If LC starts noticing a lot of unfunded loans, signifying not enough appetite from the lenders, then it could potentially increase the rates again.

Unfolder

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Re: Time for LC to Raise Interest Rates?
« Reply #4 on: October 06, 2015, 11:38:20 AM »
It's a debtors market! As competitors to LC rise, all will pursue the same debtors...we are not the customers, only mercenaries that keep LC greased. If one mercenary goes down, many others will take their place, so no need to pay them more with higher interest rates, especially when a moderately sized bank could probably buy up the entire P2P market in a day as it currently stands. Indeed, if tomorrow LC gave a 1% interest rate haircut across the board, I would grouse and bitch, then keep buying more notes and thank them for the privilege   :-[
« Last Edit: October 06, 2015, 11:42:32 AM by Unfolder »

Rob L

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Re: Time for LC to Raise Interest Rates?
« Reply #5 on: December 22, 2015, 07:31:15 PM »
And today LC finally raises interest rates! It's about time.
D's get a 34 basis point bump and E's a 77 basis point bump.
No small thing and very much needed! Self interest aside, it was a smart move.

lascott

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Re: Time for LC to Raise Interest Rates?
« Reply #6 on: December 22, 2015, 07:57:00 PM »
And today LC finally raises interest rates! It's about time.
D's get a 34 basis point bump and E's a 77 basis point bump.
No small thing and very much needed! Self interest aside, it was a smart move.
Not sure that main pages is updated yet? (main page = Note sure that main pages is updated yet?)

Updated thanks to Fred93 correcting my oops!

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« Last Edit: December 22, 2015, 10:27:09 PM by lascott »
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Fred93

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Re: Time for LC to Raise Interest Rates?
« Reply #7 on: December 22, 2015, 08:48:50 PM »
Lascott, where did you get those numbers?  Your numbers show rates going down, whereas their release says rates going up.  I'm confused.

lascott

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Re: Time for LC to Raise Interest Rates?
« Reply #8 on: December 22, 2015, 09:13:16 PM »
Lascott, where did you get those numbers?  Your numbers show rates going down, whereas their release says rates going up.  I'm confused.
Current from https://www.lendingclub.com/public/rates-and-fees.action
Past from waybackmachine.
I was confused too and why I said "Not sure that main pages is updated yet?"


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Video: http://video.cnbc.com/gallery/?video=3000468600&play=1

Lending Club raises interest rates by 0.25%
4 Hours Ago
Renuad Laplanche, Lending Club CEO, joins Closing Bell to discuss the mortgage business and why the interest rate was increased at Lending Club.
« Last Edit: December 22, 2015, 09:15:38 PM by lascott »
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Fred93

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Re: Time for LC to Raise Interest Rates?
« Reply #9 on: December 22, 2015, 09:56:09 PM »
Current from https://www.lendingclub.com/public/rates-and-fees.action
Past from waybackmachine.
I was confused too and why I said "Not sure that main pages is updated yet?"

I'm so glad I'm not the only one.

The numbers you show in the 9/19/15 column are consistent with not only the web page above, but also LCs most recent 8K filing, on the SEC web site, which says those rates are effective 12/22/15.  Did you perhaps accidentally switch the columns?  You should be able to get the older rates from one of LC's SEC filings also. 

Edited to add: I just checked the wayback machine.  Yes, you switched the columns! 

PS: The internet archive (archive.org, commonly known as the wayback machine) is running a promotion asking people do donate.  It is so useful, perhaps we should donate.
« Last Edit: December 22, 2015, 10:00:12 PM by Fred93 »

lascott

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Re: Time for LC to Raise Interest Rates?
« Reply #10 on: December 22, 2015, 10:29:24 PM »
Edited to add: I just checked the wayback machine.  Yes, you switched the columns! 
PS: The internet archive (archive.org, commonly known as the wayback machine) is running a promotion asking people do donate.  It is so useful, perhaps we should donate.
Thanks for the obvious in hindsight catch.  In fact, I did make a donation this year already.  Very useful site!
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lascott

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Re: Time for LC to Raise Interest Rates?
« Reply #11 on: April 20, 2016, 10:11:26 PM »
I got an email about this. Added the right most new columns.

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Ran

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Time for LC to Raise Interest Rates?
« Reply #12 on: April 21, 2016, 08:08:39 AM »
E-G grades 1-2% rate increase. Those notes should be on fire sale on Folio now
I got an email about this. Added the right most new columns.

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Rob L

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Re: Time for LC to Raise Interest Rates?
« Reply #13 on: April 21, 2016, 10:18:10 AM »
Thank you LC!

Emmanuel

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Re: Time for LC to Raise Interest Rates?
« Reply #14 on: April 21, 2016, 06:52:59 PM »
Here's our take on it: The most noticeable aspect in the increase in spread, not the average rates going up.



See more on http://blog.lendingrobot.com/industry/a-short-history-of-lending-club-rates/