Author Topic: LC article in today's WSJ  (Read 6710 times)

sommers

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LC article in today's WSJ
« on: July 12, 2016, 05:56:36 PM »
Front page of section 3 (I believe)  Basic take is that LC's underwriting standards took a dive in the last year or two --primarily due to diminished income verification
Plus (among other things in the article)--it was discovered that the credit card consolidators were taking the LC money and borrowing even MORE on their cards--really levering up.
My 90K portfolio is now $2800 and am I RELIEVED !!!

Fred93

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Re: LC article in today's WSJ
« Reply #1 on: July 12, 2016, 06:14:53 PM »
Horrible misleading article.  Cherrypicked numbers.  Etc.

Fred93

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Re: LC article in today's WSJ
« Reply #2 on: July 12, 2016, 06:17:05 PM »
Plus (among other things in the article)--it was discovered that the credit card consolidators were taking the LC money and borrowing even MORE on their cards--really levering up.

Some of this is complete speculation by the writer.  Really stupid.
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Part of the problem for online lenders may be that many borrowers are using their online loans to pile on more debt rather than using them for the purpose of eliminating higher-rate card balances,
« Last Edit: July 12, 2016, 06:34:15 PM by Fred93 »

rawraw

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Re: LC article in today's WSJ
« Reply #3 on: July 12, 2016, 06:18:46 PM »
Front page of section 3 (I believe)  Basic take is that LC's underwriting standards took a dive in the last year or two --primarily due to diminished income verification
Plus (among other things in the article)--it was discovered that the credit card consolidators were taking the LC money and borrowing even MORE on their cards--really levering up.
My 90K portfolio is now $2800 and am I RELIEVED !!!
You need to take a deep breath.  Your posts make me anxious

Larry321

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Re: LC article in today's WSJ
« Reply #4 on: July 13, 2016, 09:03:57 AM »
And, on top of the WSJ article there is this from Seeking Alpha:

Charge-off rates rising at LendingClub
http://seekingalpha.com/news/3192945-charge-rates-rising-lendingclub

on the other hand, there is this:

Lending Club: Sound Business Model At A Discount
http://seekingalpha.com/article/3983093-lending-club-sound-business-model-discount

Which reminds me of the joke where the King tellos his ministers to finally bring him an economist with no hands.

I have noticed that I have been getting more defaults, due to bankruptcy with 60, 59 and 58 payments remaining.

On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

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Fred93

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Re: LC article in today's WSJ
« Reply #5 on: July 13, 2016, 01:17:32 PM »
On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

A fact which never seems to make it into the negative articles.

rawraw

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Re: LC article in today's WSJ
« Reply #6 on: July 13, 2016, 05:09:24 PM »
On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

A fact which never seems to make it into the negative articles.
You can loose an awful lot of money lending based on current returns.  I personally wouldn't be so quick to dismiss people noticing negative trends.  The difference with LC is that we have access to some loan metrics, which reduce the need to try to guess what is going on in the black box based on trends

sommers

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Re: LC article in today's WSJ
« Reply #7 on: July 13, 2016, 06:14:46 PM »
I believe the WSJ's take on things

It appears factual that their underwriting standards have seriously slipped--in an apparent need to grow faster and faster and maintain market share---at least I  hope so (don't want to think of alternative explanations (such as poor governance--LC ?  NAH)
What the heck--their gravy is made on the grease.   Sure--they want to do a good job and keep investors happy--B U T

Fred93

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Re: LC article in today's WSJ
« Reply #8 on: July 13, 2016, 09:03:47 PM »
On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

A fact which never seems to make it into the negative articles.
You can loose an awful lot of money lending based on current returns.  I personally wouldn't be so quick to dismiss people noticing negative trends.

Such generalities don't help us understand the current situation much.

I'm not so much "dismissing negative trends", as I am complaining about the negative articles which never mention the positive returns AT ALL.  Reading these stories you'd think investors were all losing a bunch of money.   Ain't true.  Sure, we could lose money in the future, but so can those invested in stocks, etc.   

I can see that there are some negative trends.  One is that LC reduced interest rates were several times last year.  They went to far IMHO.  That trend has been reversed. 

Another is that delinquency rates & charge-off rates have been going up over the last year.  I've responded to that by tightening my filters a bit.  I've not gone crazy, giving up on the whole banana, carrying signs saying the world is coming to an end, as some have.

Meanwhile, LC still offers better returns than just about any other bond-like investment, with risks that can be controlled.  (By that I mean you choose which loans to invest in ... Just as you choose which bonds to buy in the bond market.)  While I fully expect that we are headed toward a recession, I've designed my loan portfolio so that on a replay of the 2009 recession, I won't lose money.  Of course it won't be an exact replay, but I believe I'll be a lot better off during that recession than your stock or junk bond portfolio.

For the record, I believe the "index" portfolio, ie just buy some of everything at LC, is idiotic.  Those F&G loans will lose a lot of money during the coming recession (whenever it arrives).

Meanwhile I stand by my position that 90% of the newspaper articles, including the recent WSJ one are one-sided crap, written by people who have educated themselves very little, and do more harm than good.  I fully expect another wave of them after LC's earnings.

rawraw

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Re: LC article in today's WSJ
« Reply #9 on: July 14, 2016, 06:13:07 AM »
I think your frustration may be more general than you think.  If you replace LC with any other item in business news, you will find the general commentary holds true.  Just accept the talking heads for what they are.  And potentially exploit some opportunities due to their influence if you want justice.

I'll expand on my generality for the sake of conversation and I'm not posting on a phone (which rarely occurs).  The "real" issue here is what is the required rate of return on LC.  You don't see many people, here or elsewhere, discuss this.  They compare returns to non-comparable items, such as CDs or the stock market.  Does the spiking charge-offs bring us below this required rate of return?  We can be economically unprofitable by still making paper gains. I don't have a mathematical model for this (I have previously), but more of an intuitive understanding of consumer credit from my experience with the banking industry.  I think I'm still doing OK -- but my portfolio is something like 30-50% (depending on my strategy and Folio activities at the time) A/B and potentially C.  I agree with what you said about the lower grades (but that comprises a lot of people's holdings).

I personally welcome difficulties at LC. I am not naive enough to not notice what is happening in the financial markets I'm engaged in -- seeking for yield is bidding up prices on assets all over here in the USA.  I consider these LC difficulties as highlighting risk, which hopefully will prevent LC from falling suit (too much, they will somewhat because they are in a competitive market).  We've seen that with recent credit rate increases.  Despite the loud moans you'd hear on this forum, I bet you could drop rates substantially, get more originations, and still have salivating funds  desperate to meet their internal hurdles for their pension accounting, external investors, etc.  Unlike other assets, LC notes aren't the present value of future earnings (meaning the lower rates impacts the discount rate, meaning the value increase).    But these declines of real assets yields just produce more money looking elsewhere for a few bps of "outperformance".

We are at all time lows for consumer credit costs.  I've said this several times over the years here, while the costs have continued to decline.  This appears to be stopping in oil heavy economies, but we will see how the rest fares.  I also think that LC has taken the wrong direction for the sake of growth (something I didn't fully understand until I got more acquainted with the capital markets business from my new job).  As a result, I still suspect like I have for years that LC needs a bank charter.  I was happy to read that SoFi is exploring Utah Industrial charters.  It seems these optimistic fintech guys (hopefully Peter included) are realizing that banks are an integral part of this system.  Instead of "disruption," I view these guys as radically pushing forward the competition for customers in the industry.  But I still think banks that follow the fintech lead for customer experience will beat a fintech 9 out of 10 times.  And I think there are benefits for a bank offloading loans to retail investors like LC does, especially as the ABS market has not been suitably created yet.  Until that time, LC business will be volatile and prone to hysteria.  The current model is fragile in nature and makes for lots of "clicks" for eye grabbing articles.
« Last Edit: July 14, 2016, 06:17:55 AM by rawraw »

Larry321

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Re: LC article in today's WSJ
« Reply #10 on: July 14, 2016, 09:15:48 AM »
The factors in the economy which affect LC are the same which affect credit card companies and banks when they provide unsecured consumer loans.
How come the financial media and fellow P2P investors hold LC to some criteria to which they do not hold credit card companies and banks?
Yes, LC provides loans to people who either were irresponsible with their credit cards or who had some crisis in life which led to needing money which they could not get from any other institution. And, yes, being an unsecured loan, there only is moral obligation and fear of lowered FICO/credit scores to encourage repayment. And, yes, there seems to be a few sociopaths who take loans and default before the first payment. but, STATISTICS are on our side. 

What LaPlanche did really will have no long term (5-10 years out) negative affect on LC or P2P lending. Why should it?  Banks and credit card companies have weathered the vicissitudes of financial economic changes. How many of us who use this forum have $1,000,000 or more invested in LC or another P2P lender?  LC democratizes capitalism.  In its purist form, capitalism is simply when someone with excess capital is able to invest it through lending it to someone who does not have enough capital, and makes profit not through the labor of his own hands, but through the lending of money.   

As long as LC is making me more than my Fidelity investments are making me, then I am happy.  Those people who are dumping on Folio are allowing their emotions to guide their investment decisions.

There are a few people on this forum who have discussed their investment strategies (secrets) with me in PM.  I am happy to publically share my strategies here.  There are enough loans and I only invest $25 at a time, so there is enough of a pie for everyone to benefit.

I am convinced that LC will continue to exist for a very long time.  And if it fails, it will only be because the company was not managed well, and ot because the idea of offering loans online is a bad idea. 

I might not ever buy more shares of LC stock, but I surely will invest in loans.

I think the key to LC's and our success in investing in loans is having accurate historical data on the loans.  I may be forced to pick up some of my old grad school statistics text books and re-learn factor analysis to figure out what are the characteristics of loans that default.  By simply predicting and reducing the num ber of defaults, one could dramatically increase one's returns.

Statistics is the key to the loan business. 

In any case, if we were all investors in the stock, we could as a group contact investor relations and make suggestions.  I wonder how LC would respond if enough of the smaller loan investors made suggestions about the data provided and the website?

Like I had said before, I am still making enough money from LC that I am willing to keeping investing and re-investing.

Next issue is financial columns.  Most of the columns I read in WSJ or on Seeking Alpha are gossip.  They are specualtion written by people who write better than me, and can meeting journalistic deadlines, but who do not necesarily understand the company about which they write better.

Doom and gloom sells newspapers.  LC and P2P will be around for a very long time. And, we, small, private investors, will continue to profit.




« Last Edit: July 14, 2016, 12:19:49 PM by Larry321 »
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Fred93

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Re: LC article in today's WSJ
« Reply #11 on: July 14, 2016, 01:23:33 PM »
Next issue is financial columns.  Most of the columns I read in WSJ or on Seeking Alpha are gossip.  They are specualtion written by people who write better than me, and can meeting journalistic deadlines, but who do not necesarily understand the company about which they write better.

Seeking alpha was always this way, but WSJ used to be better.

In any case, I have decided that there's another factor steering them.  In the  case of LC there are TWO sets of investors that the financial press serves.  (with a some overlap)  The LC note investors and the LC stock investors.  These two groups seek almost completely separate things.  On this forum we have mostly the note investors.  Our needs are poorly understood by the financial writers, as we've only been around about 8 years or so.  (and frankly that makes us new and strange)  The financial writers mostly serve the stock market investors, and with a few seconds of observation, any financial writer can see that the stock of LC is way down.  Therefore, the tone of most articles should be to take any fact and form it into a framework of an explanation of something bad that made the stock go down.

I don't know how to get around this.

Quote
Doom and gloom sells newspapers.

Yea, that too.

sommers

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Re: LC article in today's WSJ
« Reply #12 on: July 15, 2016, 07:16:31 AM »
On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

A fact which never seems to make it into the negative articles.
You can loose an awful lot of money lending based on current returns.  I personally wouldn't be so quick to dismiss people noticing negative trends.

Such generalities don't help us understand the current situation much.

I'm not so much "dismissing negative trends", as I am complaining about the negative articles which never mention the positive returns AT ALL.  Reading these stories you'd think investors were all losing a bunch of money.   Ain't true.  Sure, we could lose money in the future, but so can those invested in stocks, etc.   

I can see that there are some negative trends.  One is that LC reduced interest rates were several times last year.  They went to far IMHO.  That trend has been reversed. 

Another is that delinquency rates & charge-off rates have been going up over the last year.  I've responded to that by tightening my filters a bit.  I've not gone crazy, giving up on the whole banana, carrying signs saying the world is coming to an end, as some have.

Meanwhile, LC still offers better returns than just about any other bond-like investment, with risks that can be controlled.  (By that I mean you choose which loans to invest in ... Just as you choose which bonds to buy in the bond market.)  While I fully expect that we are headed toward a recession, I've designed my loan portfolio so that on a replay of the 2009 recession, I won't lose money.  Of course it won't be an exact replay, but I believe I'll be a lot better off during that recession than your stock or junk bond portfolio.

For the record, I believe the "index" portfolio, ie just buy some of everything at LC, is idiotic.  Those F&G loans will lose a lot of money during the coming recession (whenever it arrives).

Meanwhile I stand by my position that 90% of the newspaper articles, including the recent WSJ one are one-sided crap, written by people who have educated themselves very little, and do more harm than good.  I fully expect another wave of them after LC's earnings.

Yeah--SURE!  The WSJ is crap--biased---why read it?   Obviously many people on this forum are heavily invested in notes and are the ones who are EMOTIONALLY involved.  So, I'll respect the views of the financial media FAR MORE than the irrational I read on this forum
The facts are the facts--

LC's underwriting standards have dropped (reduction in income documentation/verification etc)

The charge offs --delinquencies--are up (I can see my late notes ballooning--and they are ALL-- A-B-C loans)--This would be the logical result of bad underwriting  (maybe a grab for market share)

There appears to be a serious corporate governance problem/s at L C

I still haven't read what legal jeopardy these notes have should LC go B K

When the scandal broke out--there was much discussion about the lack of  BRV (vs other P 2 P lenders)  on this forum---I inquired myself.
What i got back from L C was something like 'hey clown--READ your account agreement--these notes are risky business")

BUT---you all can believe what you want to believe---I'll take the opinions and reporting of the CRAP journalism from the WSJ over forum members---every day. 

I have taken $90K of notes to under $2.5K in 2.5 months with a 9.7% "traded note" return.  I am down to my last 44 current $50 notes--and it is getting to be a slow slog now--I am at a 7% discount on these last few and will probably move to 8% by end of day.  SO--come and get 'em boys
Another observation--I think the late pay deadbeater notes are growing.  I have some A-B-C er's that are late over 30 days and the notes are just 5 months old (hmmmm--maybe L C's lending standards have declined?--GEE--where did I read that?)




rawraw

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Re: LC article in today's WSJ
« Reply #13 on: July 15, 2016, 07:44:51 AM »
On the other hand, despite those losses, I am still making money from investing in LC loans, although not as much as before.
My ANAR has dropped from ~8.5% to ~7.6%

A fact which never seems to make it into the negative articles.
You can loose an awful lot of money lending based on current returns.  I personally wouldn't be so quick to dismiss people noticing negative trends.

Such generalities don't help us understand the current situation much.

I'm not so much "dismissing negative trends", as I am complaining about the negative articles which never mention the positive returns AT ALL.  Reading these stories you'd think investors were all losing a bunch of money.   Ain't true.  Sure, we could lose money in the future, but so can those invested in stocks, etc.   

I can see that there are some negative trends.  One is that LC reduced interest rates were several times last year.  They went to far IMHO.  That trend has been reversed. 

Another is that delinquency rates & charge-off rates have been going up over the last year.  I've responded to that by tightening my filters a bit.  I've not gone crazy, giving up on the whole banana, carrying signs saying the world is coming to an end, as some have.

Meanwhile, LC still offers better returns than just about any other bond-like investment, with risks that can be controlled.  (By that I mean you choose which loans to invest in ... Just as you choose which bonds to buy in the bond market.)  While I fully expect that we are headed toward a recession, I've designed my loan portfolio so that on a replay of the 2009 recession, I won't lose money.  Of course it won't be an exact replay, but I believe I'll be a lot better off during that recession than your stock or junk bond portfolio.

For the record, I believe the "index" portfolio, ie just buy some of everything at LC, is idiotic.  Those F&G loans will lose a lot of money during the coming recession (whenever it arrives).

Meanwhile I stand by my position that 90% of the newspaper articles, including the recent WSJ one are one-sided crap, written by people who have educated themselves very little, and do more harm than good.  I fully expect another wave of them after LC's earnings.

Yeah--SURE!  The WSJ is crap--biased---why read it?   Obviously many people on this forum are heavily invested in notes and are the ones who are EMOTIONALLY involved.  So, I'll respect the views of the financial media FAR MORE than the irrational I read on this forum
The facts are the facts--

LC's underwriting standards have dropped (reduction in income documentation/verification etc)

The charge offs --delinquencies--are up (I can see my late notes ballooning--and they are ALL-- A-B-C loans)--This would be the logical result of bad underwriting  (maybe a grab for market share)

There appears to be a serious corporate governance problem/s at L C

I still haven't read what legal jeopardy these notes have should LC go B K

When the scandal broke out--there was much discussion about the lack of  BRV (vs other P 2 P lenders)  on this forum---I inquired myself.
What i got back from L C was something like 'hey clown--READ your account agreement--these notes are risky business")

BUT---you all can believe what you want to believe---I'll take the opinions and reporting of the CRAP journalism from the WSJ over forum members---every day. 

I have taken $90K of notes to under $2.5K in 2.5 months with a 9.7% "traded note" return.  I am down to my last 44 current $50 notes--and it is getting to be a slow slog now--I am at a 7% discount on these last few and will probably move to 8% by end of day.  SO--come and get 'em boys
Another observation--I think the late pay deadbeater notes are growing.  I have some A-B-C er's that are late over 30 days and the notes are just 5 months old (hmmmm--maybe L C's lending standards have declined?--GEE--where did I read that?)
Seems like you've gotten more and more extreme in your views. This post is surely an example of the lack of emotion we all strive for. I promise Fred and I will do more to follow in your lead of thoughtful analysis

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mchu168

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Re: LC article in today's WSJ
« Reply #14 on: July 15, 2016, 08:56:36 AM »
Yeah--SURE!  The WSJ is crap--biased---why read it?   Obviously many people on this forum are heavily invested in notes and are the ones who are EMOTIONALLY involved.  So, I'll respect the views of the financial media FAR MORE than the irrational I read on this forum

I happen to believe the wsj is more objective than 99.9% of other media sources and their reporting on this has been relatively fair.  I also have hundreds of thousands of dollars invested in LC notes and I continue to reinvest proceeds every day.  Yes, there will come a day when my returns will suffer due to macro events, recession etc. But I do believe that underwriting standards have improved at LC lately and overall economic trends and other attributes of P2P notes (diversification, etc) make it an attractive place to invest for now and over the long run.

Put it this way, I don't lose a minute of sleep thinking about the bad stuff that could happen to my LC notes, but I do occasionally lose sleep over my exposure to treasuries, stocks, etc... That's just me and if you want to be hysterical about your LC exposure, that's your prerogative.