Author Topic: Open letter to Mr. Sanborn and the Lending Club Board of Directors  (Read 3115 times)

Boatguy

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Mr. Sanborn:

Congratulations on your promotion, though it is clearly under awkward circumstances.  None the less you have been handed one of the best turnaround opportunities that you are likely to see in your career.  Most new CEOs face a turnaround that is sick, bleeding cash and knocking on death’s door.  You have a company with a robust balance sheet, blemished brand, and enormous market opportunity.

The promise of Lending Club was to become the eBay of personal lending.  Matching retail borrowers and lenders, it could scale with technology, not people, minimizing cost, dramatically undercutting the operating expenses of other consumer lenders to bring better rates to borrowers and better returns to lenders through innovative financial products.

Sadly, that vision was not realized.  Lending Club became just another institutional lender, borrowing from other institutions and lending out at market rates, with lower costs but lower profits than retail banks, delivering better returns to institutional lenders and leaving retail investors a neglected afterthought.  After eight years, Lending Club’s "industry leading" loan volume is a tiny fraction of consumer borrowing and it has no stable supply of funds to lend.  Commercial banks are amused, but not concerned about “P2P”.  You can change this situation, or you can complete the damage control, which undoubtedly is consuming most of your time this week, and carry on with LC’s “business as usual”.  My belief is that the stock is perhaps 20% below fairly valued if you proceed with business as usual.  Here are some suggestions on how to make LC an attractive Fintech stock, as opposed to an unattractive bank stock.

1.  Tell the analysts and shareholders to expect no profits for the next two years.  You have a lot of cash, but you can’t invest in the business without generating operating losses.  Follow the path of Mr. Bezos; forget the profits, build for the future, growth is the goal.  This will keep the stock price depressed for awhile which will enable you to offer attractive stock options and recruit some first class minds to realize your vision.  It also will help you avoid the pitfalls that ensnared your predecessor’s relentless drive for profits through growth.

2.  Clean up the regulatory concerns.  Spend the time and money on lawyers and regulatory filings to definitively remove any risk to your lenders or shareholders from regulatory issues such as usury and fair lending laws.  Lending Club can’t afford the $B fines that have been paid by every major bank in the world for violating regulatory issues.  Run a clean shop that is above questioning and a benchmark of transparency and fairness for the industry.

3.  Isolate your lenders default risk from Lending Club’s financial risks.  Your lenders want to a take a risk on a consumer borrower, not on Lending Club.  Shareholders take a risk on Lending Club, the lenders should not.  Restructure your products and company to firewall your sources of capital from risk in Lending Club itself.

4.  Establish a reliable and scalable supply of lending capital.  Institutional investors are scalable, but not reliable.  Even Goldman Sachs has realized the virtues of cheap and stable retail deposits.  Set a two year goal of sourcing no less than 75% of your lending capital from retail investors.  In other words, actually establish a Peer-to-Peer lending market.

5.  Innovate.  Lending Club can’t compete entirely on price, it’s the easiest product attribute to match.  Produce innovative products for both borrowers and lenders that will forever change consumer borrowing and lending.  This is the as yet unrealized promise of P2P.


The consumer borrowing market is roughly $3.5T; the opportunity for Lending Club is enormous.  None of the above is easy.  It will take time, money and a lot of smart and dedicated employees, some of whom are already there, many who are not.

I believe you have 60-90 days to formulate, communicate, and begin implementing your vision for Lending Club.

Best of luck!
« Last Edit: May 26, 2016, 07:20:33 PM by Boatguy »

justice42

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Re: Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #1 on: May 26, 2016, 06:35:07 PM »
A well written letter, with a lot of points I agree with. Do you have any reason to believe it will get read?

Boatguy

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Re: Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #2 on: May 26, 2016, 07:03:03 PM »
A well written letter, with a lot of points I agree with. Do you have any reason to believe it will get read?
I sent Mr. Sanborn, and one director, a link to this thread and the email didn't bounce so they can read it if they so choose, and the follow up comments as well.
« Last Edit: May 26, 2016, 07:17:53 PM by Boatguy »

nonattender

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Re: Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #3 on: May 26, 2016, 07:16:41 PM »
As far as I know, he's got a couple of weeks.  The annual meeting is in early June.  I know that because I got my proxy materials a few days ago and was presented with the option of voting for Mack, Meeker, Morris, for hazard-pay for executives, and for Deloitte to audit.

https://en.wikipedia.org/wiki/Hobson's_choice  ::)
A little nonsense now and then is relished by the wisest men.

rawraw

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Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #4 on: May 26, 2016, 10:06:05 PM »
Not so sure the comparison to bank fines is appropriate

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AnilG

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Re: Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #5 on: May 26, 2016, 10:50:51 PM »
How are you planning to vote? If you are unhappy, you might want to consider voting opposite of what Board recommends. When more people do this, it gets the attention. Also, if you are in Bay area, consider attending the meeting (need special pass from your brokerage) and ask pointed questions to the board and management.

As far as I know, he's got a couple of weeks.  The annual meeting is in early June.  I know that because I got my proxy materials a few days ago and was presented with the option of voting for Mack, Meeker, Morris, for hazard-pay for executives, and for Deloitte to audit.

https://en.wikipedia.org/wiki/Hobson's_choice  ::)
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nonattender

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Re: Open letter to Mr. Sanborn and the Lending Club Board of Directors
« Reply #6 on: May 27, 2016, 12:07:24 AM »
Please.
A little nonsense now and then is relished by the wisest men.