Author Topic: What's up with this WebBank thing?  (Read 22847 times)

mo

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What's up with this WebBank thing?
« on: October 01, 2014, 02:29:59 PM »
    Got an email from LC today about how they are changing to an issuance model where the Note and the Loan are issued a few days apart.

http://kb.lendingclub.com/siteupdates/articles/Site_Updates/Changes-to-the-way-in-which-Notes-are-Issued

    Does anyone understand what this relationship with WebBank is about?  The explanation given for the change by LC is pretty Opaque, "The change to the Note issuance process was made to ensure our business remains robust in a changing environment."  And it seems to me to amount to LC paying a fee to WebBank for issuing a loan that comes out of the investors pocket in the form of a few days of lost interest.  What benefit do LC or the investors get though by adding a middle man to the whole process?

GS

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Re: What's up with this WebBank thing?
« Reply #1 on: October 01, 2014, 02:37:32 PM »
Yeah, that was discussed here a month or so ago.  It appears that for the first month, LC is going to deduct a few days worth of interest from our notes and pay it to WebBank for "holding" the notes.  This pretty much sucks since the notes are fully funded with investor cash, and WebBank is taking no risk, IMO.

Fred93

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Re: What's up with this WebBank thing?
« Reply #2 on: October 01, 2014, 04:19:31 PM »
I believe that when they say "changing environment" they mean REGULATORY environment.  Of course they don't want to say too much about that.

core

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Re: What's up with this WebBank thing?
« Reply #3 on: October 01, 2014, 07:14:27 PM »
It appears that for the first month, LC is going to deduct a few days worth of interest from our notes and pay it to WebBank for "holding" the notes.  This pretty much sucks since the notes are fully funded with investor cash, and WebBank is taking no risk, IMO.

WebBank does not "hold" the notes.  WebBank provides the capital for, and issues, the borrower member loans.  The loans are what the borrower takes out, and the borrower member receives the cash.  But they are not funded by you nor me.  They never have been.  A "note" (in this context) is a derivative, a "side bet" if you will, on whether the borrower will pay and it is between the "investor" and Lending Club.    Or more precisely it's a loan to Lending Club (not the borrower) and the house can never lose.

When you start mixing up the terms "loan" and "note" (again, in this context, not in general) it only serves to confuse the issue.  Without this basic distinction being clear, one cannot have a meaningful discussion about what these changes do or do not mean.

You are quite correct that WebBank has nothing to lose.  Neither does Lending Club.  That's the whole freaking point of this arrangement, from their perspective.  If it wasn't this way the site would not exist.

DanB

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Re: What's up with this WebBank thing?
« Reply #4 on: October 01, 2014, 07:59:21 PM »
    Got an email from LC today about how they are changing to an issuance model where the Note and the Loan are issued a few days apart.

http://kb.lendingclub.com/siteupdates/articles/Site_Updates/Changes-to-the-way-in-which-Notes-are-Issued

    Does anyone understand what this relationship with WebBank is about?  The explanation given for the change by LC is pretty Opaque, "The change to the Note issuance process was made to ensure our business remains robust in a changing environment."  And it seems to me to amount to LC paying a fee to WebBank for issuing a loan that comes out of the investors pocket in the form of a few days of lost interest. What benefit do LC or the investors get though by adding a middle man to the whole process?

This has always been the arrangement. LC has no bank license. The only thing that has monetarily changed is that LC is taking some interest that was previously paid to us.................& pay it instead to WebBank. Yes, I know it's only "several" days of interest. But based on current volume we are talking about LC removing $5 million a year from our (lenders) collective pockets & giving it to WebBank. Next year, probably $8-9 million.

DanB

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Re: What's up with this WebBank thing?
« Reply #5 on: October 01, 2014, 08:29:22 PM »
It appears that for the first month, LC is going to deduct a few days worth of interest from our notes and pay it to WebBank for "holding" the notes.  This pretty much sucks since the notes are fully funded with investor cash, and WebBank is taking no risk, IMO.

WebBank does not "hold" the notes.  WebBank provides the capital for, and issues, the borrower member loans.  The loans are what the borrower takes out, and the borrower member receives the cash.  But they are not funded by you nor me.  They never have been.  A "note" (in this context) is a derivative, a "side bet" if you will, on whether the borrower will pay and it is between the "investor" and Lending Club.    Or more precisely it's a loan to Lending Club (not the borrower) and the house can never lose.

When you start mixing up the terms "loan" and "note" (again, in this context, not in general) it only serves to confuse the issue.  Without this basic distinction being clear, one cannot have a meaningful discussion about what these changes do or do not mean.

You are quite correct that WebBank has nothing to lose.  Neither does Lending Club.  That's the whole freaking point of this arrangement, from their perspective.  If it wasn't this way the site would not exist.

Core's right. We are (& have always been) lending money to Lending Club. The only assurance that we get paid back the money we lent out (to say nothing of interest) is Lending Club's word that they will pay us & our belief in their ability to not screw up the business...............which is the main risk. Consider that in the entire time LC has existed, they've only had a couple of profitable quarters. The secondary risk, which is whether individual borrowers pay or don't pay, impacts us through our ROI, but obviously poses little risk to our portfolio as a whole unless a huge amount defaults occur all together.

Now all of the above has been the reality with p2p since day one. Some of us understood the above risks since day one, others don't really understand even today. Depending on the person in question, above average, way above average or obscenely above average returns are the reasons we've been putting money here. But ask yourself where new lenders money is going to come from tomorrow (or the day after) when interest rates finally go up to more normal levels while average returns, which have already been dropping, continue to do so amid the rate increases of "safe" alternatives. I asked this exact question directly to LC 5 years ago & have yet to receive anything that passes for a thoughtful response.  I could list "several" more questions that have never received adequate answers but I'll not go through that pointless task again. Besides I'm guessing the cheerleaders have heard enough of me for today.

core

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Re: What's up with this WebBank thing?
« Reply #6 on: October 01, 2014, 08:52:01 PM »
The only assurance that we get paid back the money we lent out (to say nothing of interest) is Lending Club's word that they will pay us (...)

Precisely.  Backed by the full faith and credit of a company:

  • 1) Which plays accounting games each month to meet projections
  • 2) Which tells LIES when things go south (see the Folio IRA discussion and many other cases)
  • 3) Whose software is written by early-twentysomethings with no foresight which comes with experience, software tested by nobody and just barely works half the time.   When said software causes investors to lose money it is quietly brushed under the rug.
  • 4) Which disseminates insider information to a select few journos ahead of major changes causing monetary loss to the average retail investor.
  • 5) Maintains a fake office building just for show

Besides I'm guessing the cheerleaders have heard enough of me for today.

Maybe the cheerleaders have.  All two of them that are left on this planet.  But rest assured that the rest of us appreciate your candid posts Dan.

Lovinglifestyle

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Re: What's up with this WebBank thing?
« Reply #7 on: October 01, 2014, 09:16:57 PM »
Absolutely.  I'll take candid over opaque or sugar coated any day!  Thank you both.

Fred93

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Re: What's up with this WebBank thing?
« Reply #8 on: October 01, 2014, 09:19:22 PM »
5) Maintains a fake office building just for show

Tell me more about the fake office building.

core

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Re: What's up with this WebBank thing?
« Reply #9 on: October 01, 2014, 10:03:11 PM »
Tell me more about the fake office building.

As I recall, it was one of the first conspiracies I exposed on this very forum.  Original thread here:
Is that really Lending Club's building in the photo?

I had foolishly hotlinked LendingClub's image in my original post, and Lending Club (wisely) took down the image from their 'About Us' page, shredding the evidence, after I exposed their deceit.  So it no longer shows with the post.  But archive.org does have a snapshot of their About Us page from 2013 which contains the image:

https://web.archive.org/web/20130115113150/http://www.lendingclub.com/public/about-us.action



Note that the alt= caption for the photo says "Lending Club HQ".  Not satellite office, abandoned building, buku expensive roadside advertisement, Stephanie's lair, etc.  No, it says headquarters.  And it does look nice.  Problem is, that wasn't their headquarters when they claimed it was.  It was a fake.  And so is the photoshopped American flag. 
« Last Edit: October 01, 2014, 10:05:50 PM by core »

Fred

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Re: What's up with this WebBank thing?
« Reply #10 on: October 01, 2014, 10:20:56 PM »
I was under the impression that it was LC HQ when they were still in Redwood City, CA.

Here is from a different perspective.

http://commons.wikimedia.org/wiki/File:Lending_Club_HQ_2.JPG


core

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Re: What's up with this WebBank thing?
« Reply #11 on: October 01, 2014, 10:30:20 PM »
I was under the impression that it was LC HQ when they were still in Redwood City, CA.

That may be, Fred, but according to Peter in the original thread, they moved in 2011.   The archive.org snapshot saying "HQ" is from 2013.  I never claimed that they built a fake office building, merely that they maintain one.


Here is from a different perspective.

Yes, you posted this one in the original thread.  No pretty tree.  It's more like a shrub.  No American flag.  Viewers may be humored by Fred's pic of Frenchie standing in front of the building, which is also in the original thread.

Certainly I did not mean to take this off topic.  LC is guilty as charged with the building fakery and that's that.

The whole reason WebBank is involved is, as Dan said, because Lending Club does not have a bank "license", as he put it.  A license to create money out of thin air, a license to convert a promise to cold hard cash, as WebBank does.   Isn't our banking system grand?  WebBank does not need our cash, because they can create it just like any other bank.  They only need us to be on the hook when the borrower doesn't pay.  That's IT.  You're not lenders, and in fact LC doesn't even call you that.  You're "investors".  Gamblers would be more appropriate.  Maybe even suckers.  But when the dealer keeps dealing blackjacks, you keep playing.  And hope you're gone from the table when the music stops.
« Last Edit: October 01, 2014, 10:39:29 PM by core »

Fred

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Re: What's up with this WebBank thing?
« Reply #12 on: October 01, 2014, 10:56:40 PM »
The whole reason WebBank is involved is, as Dan said, because Lending Club does not have a bank "license", as he put it.

From my perspective, this is a good strategy.  Many Wall Street investment banks purposely do not want to have a (commercial) bank license, because this will put them under the supervision of the Federal Reserve, which may impose very stringent, and expensive, regulatory requirements.

As far as LC having no skin in the game, this seems best described by Bloomberg as "Lending Club's assets and liabilities are perfectly matched in loss bearing: Every dollar that a borrower doesn't pay back to Lending Club is a dollar that Lending Club doesn't pay back to note holders."
http://www.bloombergview.com/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks
The article also describe another strategic advantage over regular banks: "Lending Club's assets and liabilities are perfectly matched in duration", but this is a separate issue.

The majority of the risks are born by investors/lenders, and thus the majority of rewards go to them as well.  LC is the originator and servicer for the notes.  The risk-reward profiles of investors are different than those of LC.  However, the fundamental "more-risk more-reward" structure is intact.
« Last Edit: October 01, 2014, 10:59:53 PM by Fred »

DanB

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Re: What's up with this WebBank thing?
« Reply #13 on: October 01, 2014, 11:47:43 PM »
I can't believe we're stuck on this was it or was it not their HQ thing again.............when it could easily be argued to be the least contentious of the 5 points Core listed.

But for those inclined to pursue this til the end of time perhaps you should consider the possibility that for all we know they might not have officially change the designation of HQ until way later as they moved from Sunnyvale to Redwood City to SF in pretty rapid succession. My official business HQ was a UPS mailbox for many years, even though my office was miles away & had never been inside that box.  I'm just sayin'
Yes, the building pictured was their main offices in Redwood City.  For those in the area, the building can be clearly seen on your right while heading south on Hwy 101.  I believe the logo has since been removed as I didn't see it the last time I sped by at night.


 

core

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Re: What's up with this WebBank thing?
« Reply #14 on: October 01, 2014, 11:55:21 PM »
From my perspective, this is a good strategy.  Many Wall Street investment banks purposely do not want to have a (commercial) bank license, because this will put them under the supervision of the Federal Reserve, which may impose very stringent, and expensive, regulatory requirements.

Translation:  "We want to do X, but X is regulated.  Let's do it but call it something else, or borrow someone else's license so we can continue to do X without oversight."

Ever wonder why your bank says they may cover overdrafts?  If they say that they will then it becomes a contractual obligation and they are now under the Truth In Lending Act and they have to tell you how much you're getting raped in fees.  Whereas if it's just a "courtesy", now they are immune.

"Good strategy" indeed, Fred.  And it stinks.


"Lending Club's assets and liabilities are perfectly matched in loss bearing: Every dollar that a borrower doesn't pay back to Lending Club is a dollar that Lending Club doesn't pay back to note holders."
http://www.bloombergview.com/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks

Translation:  "For every inch we get shafted, we stick it to someone else"

Out here in Iowa, we've got a name for that.  And it ain't family-friendly.