Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: ktrdsl23 on May 24, 2016, 06:16:24 PM

Title: Are you investing in new notes at LC
Post by: ktrdsl23 on May 24, 2016, 06:16:24 PM
I've been reading a lot about different people's thoughts on the issue and thought this would be a good poll.  I'm currently somewhere between choice 2 and 3, probably more towards 3 (which is what I selected).
Title: Re: Are you investing in new notes at LC
Post by: jz451 on May 24, 2016, 06:28:57 PM
I plan to continue buying only notes on Folio like I have done since I opened my account two months ago. With only a $1000 investment I can only buy 1-2 notes a month anyways and if I lose it all it's a small drop in the bucket anyways.
Title: Re: Are you investing in new notes at LC
Post by: fliphusker on May 24, 2016, 08:57:08 PM
I plan to continue buying only notes on Folio like I have done since I opened my account two months ago. With only a $1000 investment I can only buy 1-2 notes a month anyways and if I lose it all it's a small drop in the bucket anyways.
I am currently only buying on FOLIO too.  Deals have been too good to pass up.  If the deals were not so good, I would be buying notes normally on LC
I did vote for new, as there was no option for only FOLIO. 
Title: Re: Are you investing in new notes at LC
Post by: jz451 on May 24, 2016, 09:02:30 PM
Unlike you and others however I have been buying notes at a 2-3% premium. My most recent buy last week was at a slight discount, .2% I think.
Title: Re: Are you investing in new notes at LC
Post by: nmay2k on May 24, 2016, 10:06:45 PM
I would buy new notes if any matched my criteria, but I don't think this will happen for a long while....
Title: Re: Are you investing in new notes at LC
Post by: andy3109 on May 24, 2016, 10:48:21 PM
I've stopped. After 6 years I've realized that there are better investments out there that doesn't tie my money up for 3-5 years, and isn't unsecured. I'm going to wind down my account for now and invest in CF RS until LC interest rates go up.
Title: Re: Are you investing in new notes at LC
Post by: investny on May 25, 2016, 03:27:29 AM
I've stopped. After 6 years I've realized that there are better investments out there that doesn't tie my money up for 3-5 years, and isn't unsecured. I'm going to wind down my account for now and invest in CF RS until LC interest rates go up.

CF RS?
Title: Re: Are you investing in new notes at LC
Post by: Fred93 on May 25, 2016, 04:50:55 AM
I've stopped. After 6 years I've realized that there are better investments out there that doesn't tie my money up for 3-5 years

The average dollar returns to you at the midpoint of the loan if there are no prepayments.  LC loans have quite a lot of repayments, so the wait is even shorter.  On the average your money is tied up 1 to 2 years.
Title: Re: Are you investing in new notes at LC
Post by: dompazz on May 25, 2016, 11:50:51 AM
You definitely need "Stopped buying new notes but am buying on Folio only"
Title: Re: Are you investing in new notes at LC
Post by: BruiserB on May 25, 2016, 03:40:56 PM
I've decided I probably have too much in Lending Club in general.  I had been thinking this before the recent news, but now I am actually doing something about it.  I'm not at all panicked by the situation but I'm doing the following.

I had recently added to an IRA account and I'm continuing to invest the idle funds that are there with new note purchases.  I keep hearing of the opportunities on Folio but really haven't had the time to figure that world out.  I will continue to reinvest payments into further notes and as of now will continue to fund the IRA with future contributions.

I am decreasing my taxable account holdings by not reinvesting payments.  As of now I haven't reinvested since the news dropped and I am withdrawing the cash from my account weekly after the Thursday payments credit to the account.  I am deploying these funds in various stock and bond ETFs.  I haven't yet decided if I will just stop reinvesting all together until my LC account drops to my desired value or if I will go with a withdraw for a month, reinvest for a month, alternating strategy for a while.  I would like to continue to keep some newer notes in my account and I had been moving to a more conservative strategy already, so this would help get that balance sooner.
Title: Re: Are you investing in new notes at LC
Post by: LonghornSF on May 25, 2016, 04:31:05 PM
I've stopped reinvesting, although to be fair I had stopped reinvesting for about the past year. There were really a combination of things that did it for me:

1) The tax inefficiency on a taxable account is a killer.
2) The lack of liquidity prevents me from ever investing in size, i.e. >10% of my net worth. Neither Prosper nor LC have taken tangible steps to create a real secondary market, i.e. not Folfio, which is discouraging. I don't want to have so much tied up in an illiquid asset.
3) The rates LC offered most of last year were not that attractive for C and higher grades. A-B were adequately priced but not that interesting to me in terms of total return.
4) Lack of BRV is a long term concern for me, even though LC will remain solvent for at least the next 4-5 years in my view.
5) LC hasn't proven that the business model is that viable. Even in 1Q16, they were only minimally profitable. If originations go down this quarter then LC is probably back in the red.

The scandal last week was the final straw for me. The whole P2P idea was interesting but frankly I'm not interested in taking a ton of risk for maybe a few hundred extra bps in return (at best), especially since almost all that return is given up due to the tax inefficiency. I do think its an attractive asset class for institutional investors though.
Title: Re: Are you investing in new notes at LC
Post by: Fred93 on May 25, 2016, 04:39:34 PM
5) LC hasn't proven that the business model is that viable. Even in 1Q16, they were only minimally profitable. If originations go down this quarter then LC is probably back in the red.

I believe it is an absolute certainty that they will be in the red Q2.  There's just no way to make the arithmetic work to get a profit. 

For me, this is not a significant issue when deciding whether to buy their product (notes).  When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.
Title: Re: Are you investing in new notes at LC
Post by: SLCPaladin on May 25, 2016, 04:53:59 PM
5) LC hasn't proven that the business model is that viable. Even in 1Q16, they were only minimally profitable. If originations go down this quarter then LC is probably back in the red.

I believe it is an absolute certainty that they will be in the red Q2.  There's just no way to make the arithmetic work to get a profit. 

For me, this is not a significant issue when deciding whether to buy their product (notes).  When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

I think LonghorlSF makes very valid points. I came to more or less the same conclusion. I have hit the pause button until I can detect a full return of confidence on the part of retail and institutional investors to the lending markets, or a BRV is in place, whichever happens first. Once I see Q2 results, I may wade back in as long as there seems to be a coherent strategy in place.

Your burger analogy is interesting, but I don't think it's entirely accurate. Picking a place to consume a food item is a one-and-done transaction.  Buying LC note as an investment is a continuous transaction and is based on trust and long-term viability of the issuer, and is therefore very different. The product of LC (its notes) is invariably tied to the solvency and long-term performance of the company. Perhaps a more appropriate analogy would be buying a gift card of, say, several hundreds (or thousands) of dollars to a burger joint which could be used once every month (and only once a month) to buy a certain quantity burgers. In this scenario, the health of the burger joint comes very much into play when deciding whether to buy a long-term gift certificate. If the burger joints finances deteriorate before the gift card is fully expired, then you've lost some of your investment. There is no risk when buying a single meal, but there is a temporal risk when buying long-term investments.
Title: Re: Are you investing in new notes at LC
Post by: LonghornSF on May 25, 2016, 04:57:44 PM
Quote
When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

 ::) This is a pretty ridiculous analogy and I think you know it. You won't be laughing if LC goes out of business and serious questions arise about who gets the proceeds from the notes.
Title: Re: Are you investing in new notes at LC
Post by: nonattender on May 25, 2016, 08:15:25 PM
Quote
When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

 ::) This is a pretty ridiculous analogy and I think you know it. You won't be laughing if LC goes out of business and serious questions arise about who gets the proceeds from the notes.

More hamburglary...

http://www.wsj.com/articles/lendingclub-fund-falters-1464218283
http://www.marketwatch.com/story/worrying-signs-from-lendingclub-investment-fund-2016-05-25

Title: Re: Are you investing in new notes at LC
Post by: jz451 on May 25, 2016, 10:15:25 PM
Makes you wonder what they were investing in. Those returns look like someone who invested in only F-G and had a bad month. Based on the name of the fund "Broad Based Consumer Credit" I would sure hope it mirrors the distribution of all loan grades.

Quote
When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

 ::) This is a pretty ridiculous analogy and I think you know it. You won't be laughing if LC goes out of business and serious questions arise about who gets the proceeds from the notes.

More hamburglary...

http://www.wsj.com/articles/lendingclub-fund-falters-1464218283
http://www.marketwatch.com/story/worrying-signs-from-lendingclub-investment-fund-2016-05-25
Title: Re: Are you investing in new notes at LC
Post by: PhilGD on May 25, 2016, 10:38:50 PM
Quote
Makes you wonder what they were investing in. Those returns look like someone who invested in only F-G and had a bad month. Based on the name of the fund "Broad Based Consumer Credit" I would sure hope it mirrors the distribution of all loan grades.


More hamburglary...

http://www.wsj.com/articles/lendingclub-fund-falters-1464218283
http://www.marketwatch.com/story/worrying-signs-from-lendingclub-investment-fund-2016-05-25

From the article:

Quote
In a letter to investors on Tuesday, LendingClub Chief Financial Officer Carrie Dolan said that valuation adjustments on existing loans, due to increases in interest rates charged for new loans to borrowers earlier this year, were driving the weaker performance.

So the lower return was not due to credit performance.
Title: Re: Are you investing in new notes at LC
Post by: Fred93 on May 25, 2016, 10:40:32 PM
Makes you wonder what they were investing in.

All grades, similar to whole platform statistics.

Quote
Those returns look like someone who invested in only F-G and had a bad month. Based on the name of the fund "Broad Based Consumer Credit" I would sure hope it mirrors the distribution of all loan grades.

The reduced earnings in April are mostly due to a mark-to-market adjustment of loans in the portfolio, driven by the recent rate increases.  They calculate an adjustment, and then take it all immediately.  This is not the same way most retail lenders calculate their returns.  Most retail lenders would not consider the rate increase to reduce the value of their portfolio, as they intend to keep the loans until they mature. 

If you are interested in the details you can call LC and ask for the monthly tear sheet for the broad-based fund.  I believe they'll happily send you a copy.
Title: Re: Are you investing in new notes at LC
Post by: SLCPaladin on May 25, 2016, 10:42:05 PM
Makes you wonder what they were investing in. Those returns look like someone who invested in only F-G and had a bad month. Based on the name of the fund "Broad Based Consumer Credit" I would sure hope it mirrors the distribution of all loan grades.

Quote
When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

 ::) This is a pretty ridiculous analogy and I think you know it. You won't be laughing if LC goes out of business and serious questions arise about who gets the proceeds from the notes.

More hamburglary...

http://www.wsj.com/articles/lendingclub-fund-falters-1464218283
http://www.marketwatch.com/story/worrying-signs-from-lendingclub-investment-fund-2016-05-25

I'm not a finance guy, but it looks like part of the so-called poor performance may have been triggered by the adjustment of interest rates:

Quote
In a letter to investors on Tuesday, LendingClub Chief Financial Officer Carrie Dolan said that valuation adjustments on existing loans, due to increases in interest rates charged for new loans to borrowers earlier this year, were driving the weaker performance.
Title: Re: Are you investing in new notes at LC
Post by: SLCPaladin on May 25, 2016, 10:43:27 PM
Fred93 beat me to it. What he said.
Title: Re: Are you investing in new notes at LC
Post by: SLCPaladin on May 25, 2016, 10:59:18 PM
I thought the more interesting part of the article was this:

Quote
LC Advisors also told its investors—who comprise wealthy individuals, families and small hedge funds—that more than 60% of its loans were five-year loans, versus a maximum target of 42%, the correspondence with investors said. The fund also invests in three-year loans.

Makes me want to eschew 5-year loans completely if 3-year notes is what the putative smart money is insisting on.
Title: Re: Are you investing in new notes at LC
Post by: nonattender on May 25, 2016, 11:15:06 PM
I thought the more interesting part of the article was this:

Quote
LC Advisors also told its investors—who comprise wealthy individuals, families and small hedge funds—that more than 60% of its loans were five-year loans, versus a maximum target of 42%, the correspondence with investors said. The fund also invests in three-year loans.

Makes me want to eschew 5-year loans completely if 3-year notes is what the putative smart money is insisting on.

Yeah, they buried the lead.  What's a couple hundred million out of tolerance?  ::)
Title: Re: Are you investing in new notes at LC
Post by: Fred93 on May 26, 2016, 12:14:21 AM
I thought the more interesting part of the article was this:

Quote
LC Advisors also told its investors  ... that more than 60% of its loans were five-year loans, versus a maximum target of 42%, ...

Yeah, they buried the lead.  What's a couple hundred million out of tolerance?  ::)

60.9% - 42% = 18.9% outside target allocation
18.9% x $825M fund size = $156M. 

They were inside the target range in 2013, but like the Jefferson's, they've been "movin' on up" ever since.  The allocation shifted a little bit almost every month. 

I've sent a note to my contact at LC asking if & when they intend to correct this.

Apr 2016  60.9%
Mar 2016  60.31%
Feb 2016  60.01%
Jan 2016  58.1%

Dec 2015  57.0%
Nov 2015  55.7%
Oct 2015  54.6%
Sep 2015  54.1%
Aug 2015  53.3%
Jul 2015  52.7%
Jun 2015  51.5%
May 2015  52.7%
Apr 2015  51.6%
Mar 2015  52.1%
Feb 2015  51.7%
Jan 2015  51.8%

...
Jan 2014  44.4%
Title: Re: Are you investing in new notes at LC
Post by: investny on May 26, 2016, 03:16:46 AM
Some of Wall Street’s biggest banks are making contingency plans to cut their exposure to online consumer loans if the market deteriorates further after the recent crisis at LendingClub Corp.
http://finance.yahoo.com/news/banks-said-devise-plans-cutting-221736954.html

more on Cirrix
http://finance.yahoo.com/news/mack-disrupted-wall-street-waltzed-080007974.html
Title: Re: Are you investing in new notes at LC
Post by: sommers on May 26, 2016, 06:47:49 AM
5) LC hasn't proven that the business model is that viable. Even in 1Q16, they were only minimally profitable. If originations go down this quarter then LC is probably back in the red.

I believe it is an absolute certainty that they will be in the red Q2.  There's just no way to make the arithmetic work to get a profit. 

For me, this is not a significant issue when deciding whether to buy their product (notes).  When shopping for a burger, I don't examine the profitability of McDonalds and Jack In The Box.

Buying a burger is analogous to investing in LC notes?  huh?
Title: Re: Are you investing in new notes at LC
Post by: Fred93 on May 26, 2016, 07:33:21 AM

Buying a burger is analogous to investing in LC notes?  huh?

The notes are LC's "product".
Title: Re: Are you investing in new notes at LC
Post by: andy3109 on May 27, 2016, 07:54:41 PM
CF RS?

CrowdFunding Real estate
Title: Re: Are you investing in new notes at LC
Post by: Cidney369 on May 29, 2016, 11:18:28 PM
I'm still adding new money and investing in notes as usual.  Reinvesting all interest and return of principal.  I'm satisfied with the quality of notes I've purchased in the last week.  My expectation is that borrowers will continue to pay on their loans. Lending Club is an amazing concept.  It's likely some big money will come to the rescue or there will be a purchase of LC, especially with the share price so low.  In fact, a Chinese investor already has snapped up 11% of LC shares. The concept is growing in the EU and in China.  I think the Board acted quickly and appropriately.
Title: Re: Are you investing in new notes at LC
Post by: ThinleyWangchuk on June 01, 2016, 01:59:41 PM
Quality of notes are improving - investing in new loans
Title: Re: Are you investing in new notes at LC
Post by: twigster on June 03, 2016, 11:33:57 PM
Quote
Quality of notes are improving - investing in new loans
I was just buying Folio notes all at a significant discount, noticing that the YTM was greater than the note interest rate, then looked at the current interest rates here:
https://www.lendingclub.com/public/rates-and-fees.action (https://www.lendingclub.com/public/rates-and-fees.action)
Most of the existing folio notes even when purchased at a discount, the YTM is still below the new notes since the interest rates on the new notes is much higher than the existing pool of notes on folio.  Makes sense, they have moved interest rates up so there should be a sizable discount on folio anyway [even if there was no other issues with investor confidence]. 
ergo:  now buying more new loans and checking ytm exceeds new note interest rate on folio before purchase
Title: Re: Are you investing in new notes at LC
Post by: fliphusker on June 04, 2016, 02:38:11 AM
Quote
Quality of notes are improving - investing in new loans
I was just buying Folio notes all at a significant discount, noticing that the YTM was greater than the note interest rate, then looked at the current interest rates here:
https://www.lendingclub.com/public/rates-and-fees.action (https://www.lendingclub.com/public/rates-and-fees.action)
Most of the existing folio notes even when purchased at a discount, the YTM is still below the new notes since the interest rates on the new notes is much higher than the existing pool of notes on folio.  Makes sense, they have moved interest rates up so there should be a sizable discount on folio anyway [even if there was no other issues with investor confidence]. 
ergo:  now buying more new loans and checking ytm exceeds new note interest rate on folio before purchase
I am absolutely no folio expert, so take the rest with a grain of salt.
If I can grab a note on FOLIO that is 12 months old at 1% over original YTM knowing that the first 12 months are the most dangerous to own a note, or I could buy a brand spanking new note that is 1% more, which one will I take?  I think it is a no brainer choice.  Both notes of course meet your criteria for purchase. 
Am I looking at this wrong?
Title: Re: Are you investing in new notes at LC
Post by: twigster on June 04, 2016, 09:21:46 AM
It is at least worth referencing back to the current interest rates being offered, often they are up to 2% higher, I was quite surprised at this as I had not been checking before when buying off folio.  It appears LC wants to make up for lowering the interest rates previously while the default rates were rising.  Yes you can still find good deals on folio depending on what difference you would be willing to take between the folio note and new notes.
Title: Re: Are you investing in new notes at LC
Post by: dompazz on June 05, 2016, 06:45:14 PM
Over the past month I have been buying the cigarette butts on Folio.  Loans with <=12 payments, good credit and payment history were selling for 2-5% discount.  That seems to have dried up. 

I am also seeing more of my notes selling at a premium of >1.5%.  I even sold a note last week that I picked up the week before for a 2.5% discount for a 1.7% markup.  Good times.

The quality of notes getting listed on the primary market in the last few days has picked up (in my eyes).  I'm back to buying there, though I am still not adding new money to LC, just re-investing cash flows. 
Title: Re: Are you investing in new notes at LC
Post by: ThinleyWangchuk on June 06, 2016, 12:07:59 PM
Quote
Quality of notes are improving - investing in new loans
I was just buying Folio notes all at a significant discount, noticing that the YTM was greater than the note interest rate, then looked at the current interest rates here:
https://www.lendingclub.com/public/rates-and-fees.action (https://www.lendingclub.com/public/rates-and-fees.action)
Most of the existing folio notes even when purchased at a discount, the YTM is still below the new notes since the interest rates on the new notes is much higher than the existing pool of notes on folio.  Makes sense, they have moved interest rates up so there should be a sizable discount on folio anyway [even if there was no other issues with investor confidence]. 
ergo:  now buying more new loans and checking ytm exceeds new note interest rate on folio before purchase

How do you sort out the notes on foliofn (i.e. by employment status, revolving balance etc)?