Author Topic: LC Article on Seeking Alpha  (Read 2328 times)

Reginald

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LC Article on Seeking Alpha
« on: October 19, 2017, 10:51:46 PM »
I ran across an interesting article about Lending Club the other day which I believe is relevant to this forum. The author examines the incentives built in to Lending Clubs business model, and how their own rush to grow loan originations could be threatened by capital flight due to increasing risk and lower returns as investors start to move capital elsewhere.

"LendingClub: Capital Supply A Major Risk"
https://seekingalpha.com/article/4113649-lendingclub-capital-supply-major-risk

What do you think?

Fred93

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Re: LC Article on Seeking Alpha
« Reply #1 on: October 20, 2017, 02:38:00 AM »
He doesn't say anything we didn't already know. 

These are valid concerns.  They are not conclusions about the future tho.  He doesn't predict the future, so he can't be "wrong".  !!!   

Even tho LC's product returns are lower than they used to be, banks are still increasing the amount they put into LC each quarter.  He sounds like he's trying to make a connection between returns going down and banks decision-making, but he fails to complete the argument. 

What is a reasonable return for this product?  Hard to say.  As an investor I'd like to get the outrageously great returns I got a few years ago, but apparently that is no longer possible. 

If the product returns had stayed what they were a few years ago, then LC's stock would have been  worth the IPO price, because they would have continued to grow really fast.   As is often the case, real events proved a little more difficult than that.


jd

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Re: LC Article on Seeking Alpha
« Reply #2 on: October 20, 2017, 07:21:05 AM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

Thanks



apc3161

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Re: LC Article on Seeking Alpha
« Reply #3 on: October 20, 2017, 08:37:50 AM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

Thanks
.

I think returns need to be 1-2% greater than a high yield bond fund (e.g. HYG which gives ~6%), so at least 7-8%. At the end of the day, these are non-secured loans, so the return has to be higher than corporate loans which are at least "secured" by assets that could be sold in the event of bankruptcy, where bondholders have first right.

In addition, LC has a terrible tax structure, all interest is taxes as income, but losses are only seen as capital gains losses. Bonds funds don't suffer from this if you just hold on to them. So LC needs to have increased returns secondary to this effect as well.

Right now, in my opinion, there is basically no reason to keep money in the program if returns are 3-6%.

lender90530

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Re: LC Article on Seeking Alpha
« Reply #4 on: October 20, 2017, 11:19:38 AM »
In addition, with LC you are taking single company risk; with HYG you are not.

Fred93

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Re: LC Article on Seeking Alpha
« Reply #5 on: October 20, 2017, 02:25:35 PM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

For several years I was getting >10% in my LC account.  Now I'm around 6%. 
(Measured simplest possible way, ie ratio of monthly account balances, then annualized)

I thought >10% was pretty great.

jd

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Re: LC Article on Seeking Alpha
« Reply #6 on: October 20, 2017, 02:32:20 PM »
I thought >10% was pretty great.


It is

rawraw

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Re: LC Article on Seeking Alpha
« Reply #7 on: October 25, 2017, 06:41:00 PM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

Thanks
.

I think returns need to be 1-2% greater than a high yield bond fund (e.g. HYG which gives ~6%), so at least 7-8%. At the end of the day, these are non-secured loans, so the return has to be higher than corporate loans which are at least "secured" by assets that could be sold in the event of bankruptcy, where bondholders have first right.

In addition, LC has a terrible tax structure, all interest is taxes as income, but losses are only seen as capital gains losses. Bonds funds don't suffer from this if you just hold on to them. So LC needs to have increased returns secondary to this effect as well.

Right now, in my opinion, there is basically no reason to keep money in the program if returns are 3-6%.
The probability of bankruptcy is higher in high yield bonds. And high yield bonds are often unsecured...

apc3161

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Re: LC Article on Seeking Alpha
« Reply #8 on: October 26, 2017, 06:22:42 AM »
The probability of bankruptcy is higher in high yield bonds. And high yield bonds are often unsecured...

I think the probably of bankruptcy in those funds is much less than the probability of a consumer stopping installment loan payments, as demonstrated by LC performance.

rawraw

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Re: LC Article on Seeking Alpha
« Reply #9 on: October 26, 2017, 08:48:47 AM »
The probability of bankruptcy is higher in high yield bonds. And high yield bonds are often unsecured...

I think the probably of bankruptcy in those funds is much less than the probability of a consumer stopping installment loan payments, as demonstrated by LC performance.
Probabilities are not based on what has happened in the past few months. Although many retail investors behave like such

Reginald

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Re: LC Article on Seeking Alpha
« Reply #10 on: October 27, 2017, 10:29:52 PM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

For several years I was getting >10% in my LC account.  Now I'm around 6%. 
(Measured simplest possible way, ie ratio of monthly account balances, then annualized)

I thought >10% was pretty great.

I used to thing 5% was good. Now I think this is more risk than return. My accounts are really flat year over year, despite the NAR reported on the LC  main page.

Check out the average return aver 15 months for ALL investors and ALL grades :

https://www.lendingclub.com/info/statistics-performance.action

Reginald

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Re: LC Article on Seeking Alpha
« Reply #11 on: October 31, 2017, 12:03:28 PM »
Another interesting and insightful article about LC. 

https://www.lendacademy.com/lending-club-closes-five-investment-funds-rebrands-lc-advisors/

Some of this is ancient history, but it's interesting to note that the company seems optimistic, but a few years ago there was significant pressure to liquidate loan portfolios, after the scandal. Still they are able to get 6% returns, which is better than my performance as of late.

Rob L

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Re: LC Article on Seeking Alpha
« Reply #12 on: October 31, 2017, 11:07:40 PM »
As I read it they are not "still getting" 6%. From the blog post:

"When we asked Suri about positioning the new offerings to investors he stated that their biggest flagship fund under LC Advisors had delivered slightly over 6% annualized since 2011."

There were some awfully good returns 2011 through mid 2015 that are included the 6% annualized statistic.
Would be curious to see returns by year rather than a 6 year aggregate. Think the last couple of years have yielded very poor returns but I am not an investor with them and don't know for certain.

Rob L

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Re: LC Article on Seeking Alpha
« Reply #13 on: October 31, 2017, 11:25:09 PM »
What would you consider outrageously great returns? I'm relatively new to Lending Club and would like to hear the perspective from someone who has been around a while.

For several years I was getting >10% in my LC account.  Now I'm around 6%. 
(Measured simplest possible way, ie ratio of monthly account balances, then annualized)

I thought >10% was pretty great.

I think 6% annualized monthly returns is pretty great these days.
Didn't think any long time investors were doing that well now.