Author Topic: What's up with this WebBank thing?  (Read 21854 times)

DanB

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Re: What's up with this WebBank thing?
« Reply #15 on: October 01, 2014, 11:57:42 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.

At best that's an extreme oversimplification of the risks. At worst, it's just plain incorrect.  As Core & I have described above ( & ad nauseam in the past) & as LC clearly states in the "risks" section of its own prospectus, it is entirely possible that a borrower may pay back LC & LC may not pay us back................unless you're investing like their institutional investors. That is why I have been harping on for a year now about LC creating a BRV (like Prosper) which shields the notes from being just another LC obligation & protects us (retail investors) from the platform risk described.

Fred

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Re: What's up with this WebBank thing?
« Reply #16 on: October 02, 2014, 12:03:05 AM »
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."

I  think LC is neither doing it nor borrowing license.

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.

LC does not get shafted when borrower does not pay.

Fred

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Re: What's up with this WebBank thing?
« Reply #17 on: October 02, 2014, 12:12:42 AM »
At best that's an extreme oversimplification of the risks. At worst, it's just plain incorrect. 

Matching duration and risk is a unique LC advantage that regular commercial banks cannot afford.  It eliminates a whole host of financial and regulatory issues.

As an investor, I want LC to be profitable, so that I can be profitable.  If LC charges fees here and there (totaling 1.1% instead of 1.0%), that is fine.  I want it to stay alive.

LonghornSF

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Re: What's up with this WebBank thing?
« Reply #18 on: October 02, 2014, 12:20:05 AM »
I hope the bit about Lending Club's HQ being a conspiracy is a joke. That was their original HQ before they move to SF. They probably forgot to change the image when they moved -- startups tend to have more important things to worry about. There are bones to pick with LC but this is not one of them.

core

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Re: What's up with this WebBank thing?
« Reply #19 on: October 02, 2014, 12:23:46 AM »
LC does not get shafted when borrower does not pay.

Well of course they don't, because they stick it to someone else first.  Yes it is a good strategy.

I  think LC is neither doing it nor borrowing license.

They are borrowing license in my opinion.  They are hanging themselves out as a lender.  They are acting as a bank, piggybacking on WebBank's charter.

As a pilot, the most recent case that comes to my mind is the 2005 Teterboro crash.  Platinum Jet Management LLC was a charter jet company but did not have a part 135 certificate (therefore not legal to fly on-demand flights).  So instead they had Darby Aviation, a valid certificate holder, take legal responsibility for the actual flights and PJM would do the flying after the flight was booked. 

Much like what LendingClub and WebBank are doing.  Sound familiar?

The owners of Platinum Jet Mangement were sentenced to prison.  The FAA was aware of what they were doing all along.  All it took was one unpleasant event, and things suddenly rose to a higher standard.  That moment may come some day for Lending Club.  When/if it happens, all of your funds are at risk because the company itself will be.

Fred

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Re: What's up with this WebBank thing?
« Reply #20 on: October 02, 2014, 12:35:28 AM »
Well of course they don't, because they stick it to someone else first.  Yes it is a good strategy.

Sorry, LC does not stick it to someone else.   Investors should know about the risks coming in.  No surprise here.

I  think LC is neither doing it nor borrowing license.

They are borrowing license in my opinion.  They are hanging themselves out as a lender.  They are acting as a bank, piggybacking on WebBank's charter.

As a pilot, the most recent case that comes to my mind is the 2005 Teterboro crash.  Platinum Jet Management LLC was a charter jet company but did not have a part 135 certificate (therefore not legal to fly on-demand flights).  So instead they had Darby Aviation, a valid certificate holder, take legal responsibility for the actual flights and PJM would do the flying after the flight was booked. 

Much like what LendingClub and WebBank are doing.  Sound familiar?

I am not an expert in aviation licensing, but this seems a bit too stretched to relate this to LC and WebBank.  The interaction between LC and WebBank is well-defined; similar practice is done in mortgage industry -- i.e., almost similar to mortgage originators and servicers.

core

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Re: What's up with this WebBank thing?
« Reply #21 on: October 02, 2014, 12:58:44 AM »
Sorry, LC does not stick it to someone else.   Investors should know about the risks coming in. 

Is that why I'm not allowed to sell Folio notes for negative YTM anymore?  Is that why there's a big ol' warning added saying you're about to get raped when you click over to the Folio site?  Because investors are so smart they should already have "known about the risks coming in"? 

No, the San Francisco pinkos have decided I'm not allowed to stick it to investors anymore because the investors are too stupid and need to be protected.  I don't see how this agrees with your suggestion.  If anyone's going to get stuck, LC is going to be the ones to do it.  That's how I see it.

I am not an expert in aviation licensing, but this seems a bit too stretched to relate this to LC and WebBank. 

Perhaps.  I never let facts get in the way of a point, nor a good plane crash story.  But it's something to ponder.  Everyone involved thought they had found the perfect loophole.  Indeed, they had.  Until...!  It could be argued that the goalposts were moved in response to public outcry.  Lending Club is not immune from this either.  And wouldn't it be ever-so-ironic if the experts of goalpost-moving were brought down by that very same activity.

similar practice is done in mortgage industry -- i.e., almost similar to mortgage originators and servicers.

Translation:  "But, everyone else is doing it!"

Actually, not quite:
Mortgage servicers do not run radio ads enticing potential borrowers to apply for a loan at their own site.  Mortgage servicers do not have underwriters that grade potential loans.  Mortgage servicers do not decide what date the borrower can have their money, or if s/he is even qualified.

I'm suddenly starting to have a bad feeling about the future of Lending Club.
« Last Edit: October 02, 2014, 01:10:10 AM by core »

DanB

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Re: What's up with this WebBank thing?
« Reply #22 on: October 02, 2014, 01:10:05 AM »
At best that's an extreme oversimplification of the risks. At worst, it's just plain incorrect. 

Matching duration and risk is a unique LC advantage that regular commercial banks cannot afford.  It eliminates a whole host of financial and regulatory issues.

As an investor, I want LC to be profitable, so that I can be profitable.  If LC charges fees here and there (totaling 1.1% instead of 1.0%), that is fine.  I want it to stay alive.

 But your response did not in any way address the concerns about diminishing the platform risk. If LC has a problem in the future or makes some serious blunder that shakes public confidence & has problems achieving consistent profitability, then I'd just as soon not let that debacle have the potential of taking all of our money down as well. You're deluding yourself if you don't think that is a big potential problem.

But I can respect your position that you're satisfied with giving LC a bit more & a bit more & a bit more in order for them to remain alive. I'm assuming you feel this way because you find your returns to be adequate considering the alternatives. My question is how will you feel when your returns decrease (which they will) & how will you feel when the gap closes between what you "earn" here & what you can get effortlessly elsewhere..............which will also happen in the not too distant future.

core

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Re: What's up with this WebBank thing?
« Reply #23 on: October 02, 2014, 03:30:32 AM »
I'm hesitant to even bring this up again, but just to put it to rest...

Fred, you may recall saying this in the thread about the office building:

Please do let us know what you discover.

Better late than never, I guess.  I now have the results of my investigation ready to share.

The photo appears to be legit.  It was taken from approximately this angle; this is as granular as I could get Google streetview to go.  The logo does not say LC but this is the shot:



I would guess that the photographer stood next to the pink electrical enclosure near the black car, or on top of it.  Since I doubt it matters to anyone here which one, I did not actually calculate the angles.  Notice how the 4 trees blend together to look like one.  In reality they are awfully spindly looking trees from the side.

As for the flag:



So I hope this settles it for all you skeptics.  Lending Club obviously planted some mature trees and erected a flagpole after the original discussion to make things look legit.

Fred93

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Re: What's up with this WebBank thing?
« Reply #24 on: October 02, 2014, 04:56:23 AM »
Wow.  Now this is real lending analytics!

rawraw

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Re: What's up with this WebBank thing?
« Reply #25 on: October 02, 2014, 07:14:33 AM »
\
Mortgage servicers do not run radio ads enticing potential borrowers to apply for a loan at their own site.

 Mortgage servicers do not have underwriters that grade potential loans. 

Mortgage servicers do not decide what date the borrower can have their money, or if s/he is even qualified.

Yes they can.  Yes they can. And yes they can. 

Quote
My question is how will you feel when your returns decrease (which they will) & how will you feel when the gap closes between what you "earn" here & what you can get effortlessly elsewhere..............which will also happen in the not too distant future.
Your question is misleading, assuming that LC pricing is not impacted by market rates.  I forget what index they are pegged to, but their rates will move when index rates move.  Of course they can adjust by how much to tweak supply/demand.

« Last Edit: October 02, 2014, 07:16:18 AM by rawraw »

DanB

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Re: What's up with this WebBank thing?
« Reply #26 on: October 02, 2014, 08:50:36 AM »
\
Mortgage servicers do not run radio ads enticing potential borrowers to apply for a loan at their own site.

 Mortgage servicers do not have underwriters that grade potential loans. 

Mortgage servicers do not decide what date the borrower can have their money, or if s/he is even qualified.

Yes they can.  Yes they can. And yes they can. 

Quote
My question is how will you feel when your returns decrease (which they will) & how will you feel when the gap closes between what you "earn" here & what you can get effortlessly elsewhere..............which will also happen in the not too distant future.
Your question is misleading, assuming that LC pricing is not impacted by market rates.  I forget what index they are pegged to, but their rates will move when index rates move.  Of course they can adjust by how much to tweak supply/demand.

And your statement is misleading as well because the scenario you suggest has never been tested & presupposes that there is much upside room available. What is the highest rate charged today in this near zero interest rate environment?  24%, 25%? What do you suspect the rates will be be when the time comes where you can roll into a bank & get a three year & five year CD at 3%-5%? You think that the ever increasing number of borrowers needed by p2p will support a 27-29% top rate? Really because I'm certain the current type of borrowers, (80% of whom supposedly consolidate or pay off credit) will have little appetite for rates above their MC/Visa.  What policy code number will they call these sub 640 individuals?  What type of annual default numbers will these guys have? 

rawraw

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Re: Re: What's up with this WebBank thing?
« Reply #27 on: October 02, 2014, 08:52:32 AM »

And your statement is misleading as well because the scenario you suggest has never been tested & presupposes that there is much upside room available. What is the highest rate charged today in this near zero interest rate environment?  24%, 25%? What do you suspect the rates will be be when the time comes where you can roll into a bank & get a three year & five year CD at 3%-5%? You think that the ever increasing number of borrowers needed by p2p will support a 27-29% top rate? Really because I'm certain the current type of borrowers, (80% of whom supposedly consolidate or pay off credit) will have little appetite for rates above their MC/Visa.  What policy code number will they call these sub 640 individuals?  What type of annual default numbers will these guys have?
So now your saying that your credit card rates aren't floating. Well I can't speak for the one percent, but all ten of mine are also variable rate.

lascott

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Re: What's up with this WebBank thing?
« Reply #28 on: October 02, 2014, 09:30:23 AM »
I forget what index they are pegged to, but their rates will move when index rates move.  Of course they can adjust by how much to tweak supply/demand.

http://andirog.blogspot.com/2012/06/lending-club-base-interest-rate-excess.html
Quote
Base Interest Rate
The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release.
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Half Right

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Re: What's up with this WebBank thing?
« Reply #29 on: October 02, 2014, 10:57:42 AM »
Does anyone know if the LC Advisor funds are also paying WebBank?