Author Topic: Lending Club Is A Bank  (Read 562 times)

rawraw

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Lending Club Is A Bank
« on: February 18, 2020, 06:03:16 PM »

AnilG

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Re: Lending Club Is A Bank
« Reply #1 on: February 18, 2020, 10:30:31 PM »
About time, but most probably not good for retail lenders, as they may be phased out, with cheap access to deposit capital.
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Fred93

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Re: Lending Club Is A Bank
« Reply #2 on: February 19, 2020, 12:40:16 AM »
Quote
not good for retail lenders, as they may be phased out

The phase-out has been underway for several years.  We're in the tail end of the phase-out now.  The volume is now incredibly low.  New loans are dumped onto the retail platform 4 times per day (the "feeding times").  A few years ago they used to dump in several hundred new loans at each feeding.   Recently it has often been single digit, or maybe 10 or 12 loans at a time if we're lucky.  Here are the actual counts for the last 2 days...

02/17 06:00   6 loans
02/17 10:00   4 loans
02/17 14:00   0 loans
02/17 18:00   3 loans

02/18 06:00   0 loans
02/18 10:00  13 loans
02/18 14:00   2 loans
02/18 18:00   4 loans

That doesn't add up to an ongoing business.  They're just saving face and turning down the level of activity slowly, driving people away, rather than making a big event of shutting down the retail operation all at once, which would generate negative PR. 


Quote
As part of efforts to clear its path to becoming a regulated bank, the company has asked its largest shareholder, Asian investment firm Shanda, to trade its 22% stake in LendingClub for nonvoting shares.

We've all watched as Shanda has bought up shares, wondering where that was headed.  We still don't know.  Although they say they "have asked" Shanda for this exchange, I'm presuming that they (he) must have said yes.  It is my understanding that there are reporting requirements for entities that have controlling interest greater than some percentage (I thought it was 25%) in certain kinds of financial businesses that handle other people's money.  Probably Shanda doesn't want the intrusiveness of this reporting.  ...completely understandable.

Fred93

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Re: Lending Club Is A Bank
« Reply #3 on: February 19, 2020, 01:22:47 AM »
Here's another cute quote from the story...
Quote
The deal will allow San Francisco-based LendingClub to offer new products to its clients, diversify its earnings and reduce or eliminate the use of institutional funding sources, according to the documents

Look at those words "eliminate the use of institutional funding sources" !!!

CNBC made an incorrect logical jump here.  In the earnings call, Sanborn said they were going to keep some of the high quality loans on their (bank) balance sheet.  That's not the same thing as saying they're gonna "eliminate" institutional customers.

Right now LC makes a much higher margin on institutional investments than they do on retail investments.  Years ago they set the fees for the retail platform too low.  They actually charge the institutional customers more!  [They charge institutional customers with a different kind of fee, so you have to do some work to compare the two.]  Also the costs of putting a loan thru the retail platform are much higher.  There's SEC reporting on every damn loan, and of course customer service, ie answering the phones for all the retail lenders, sending them statements and 1099s, maintaining the web site and the servers behind it.

So there's no puzzle on why LC has been turning down the flame under the retail business.  But the institutional customers?

The earnings call gave some clarity to this...
Quote
Keep in mind, we're only looking to hold about 10% of our volume per year, so still majority of our loans will be sold, but this allows us to build our resiliency, diversify our revenue sources and really benefit from what we've been building over the last 10 years, which is the largest asset -- personal loan asset generator in the country.

Probably what ya gotta do to compete with Goldman/Marcus. 

FYI..
The press release...
https://radiusbank.com/lendingclub-announces-acquisition-of-radius-bank/

Today's earnings call transcript...
https://seekingalpha.com/article/4325103-lendingclub-corporation-lc-ceo-scott-sanborn-on-q4-2019-earnings-call-transcript

From the earnings call...
Quote
our largest shareholder Shanda has agreed to exchange all of its voting common stock for non-voting stock. As part of the exchange, Shanda will receive payment of $50.2 million. While significant, this payment unlocks substantial shareholder value and clears the path for the acquisition of Radius.

Just as I suspected.  Shanda got something in return for giving up voting rights.  $50.2 Million is not a bad fee, eh?

Rob L

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Re: Lending Club Is A Bank
« Reply #4 on: February 19, 2020, 09:57:54 AM »
At the open at least the equity market isn't impressed. LC is down $1.20 per share (-9.12%) to $11.96 per share.
They did announce quarterly earnings last evening which is a major factor of course.
Where it will close is anyone's guess. BTW the Dow is up 82.
« Last Edit: February 19, 2020, 09:59:55 AM by Rob L »

Rob L

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Re: Lending Club Is A Bank
« Reply #5 on: February 19, 2020, 04:12:26 PM »
Quite a day for LC stock. Rallied from a low of $11.66 around 10 am into the close and finished at $12.98 a share; a loss of only 1.37%.
The volume was 3x an average day.
If I'm not mistaken they reported their first quarterly profit ever. What's not to like  :)

Rob L

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Re: Lending Club Is A Bank
« Reply #6 on: February 19, 2020, 09:25:09 PM »
You can't make this stuff up; largest loan asset segment "Yachts". I didn't Photoshop it; really.
Wow, must be Boston  :)



Fred93

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Re: Lending Club Is A Bank
« Reply #7 on: February 19, 2020, 10:00:36 PM »
I saw that.  At least they're probably secured loans.

There's an error on that slide.  See where it says "(in millions)"?  Those aren't millions.  Must actually be thousands.

$1,077,335 (millions) would be 1 Trillion dollars worth of yachts, which would be one hellofa lotta yachts.

rawraw

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Re: Lending Club Is A Bank
« Reply #8 on: February 20, 2020, 08:06:44 AM »
Fred, I think they meant institutional debt providers, not purchasers of loans
 
Without a portfolio of loans, LendingClub will have extreme volatility of earnings. Balance sheet interest income will mitigate that issue a bit
« Last Edit: February 20, 2020, 08:09:16 AM by rawraw »

Rob L

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Re: Lending Club Is A Bank
« Reply #9 on: February 20, 2020, 08:31:01 AM »
I saw that.  At least they're probably secured loans.

There's an error on that slide.  See where it says "(in millions)"?  Those aren't millions.  Must actually be thousands.

$1,077,335 (millions) would be 1 Trillion dollars worth of yachts, which would be one hellofa lotta yachts.

LOL! yeah I missed it!
Probably secured and super prime borrowers.

Rob L

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Re: Lending Club Is A Bank
« Reply #10 on: February 20, 2020, 08:53:53 AM »
From the earnings call...
Quote
our largest shareholder Shanda has agreed to exchange all of its voting common stock for non-voting stock. As part of the exchange, Shanda will receive payment of $50.2 million. While significant, this payment unlocks substantial shareholder value and clears the path for the acquisition of Radius.

Just as I suspected.  Shanda got something in return for giving up voting rights.  $50.2 Million is not a bad fee, eh?

Shanda's (Mr. Chen's) holdings on 12/31/2019 was  22.20%   (Shares 19,562,881   Value $229,276,965)
The fee per share is $50M / 19.5M shares =  $2.57 per share. Not bad at all.


Rob L

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Re: Lending Club Is A Bank
« Reply #11 on: February 20, 2020, 08:57:01 AM »
Fred, I think they meant institutional debt providers, not purchasers of loans
 
Without a portfolio of loans, LendingClub will have extreme volatility of earnings. Balance sheet interest income will mitigate that issue a bit

All the talk over the years about "skin in the game" regarding their underwriting. Now they will have it!

jrl

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Re: Lending Club Is A Bank
« Reply #12 on: February 20, 2020, 09:12:40 PM »
Fred, I think they meant institutional debt providers, not purchasers of loans
 
Without a portfolio of loans, LendingClub will have extreme volatility of earnings. Balance sheet interest income will mitigate that issue a bit

All the talk over the years about "skin in the game" regarding their underwriting. Now they will have it!

They still get to decide which loans they'll hold, and which ones they'll offer up to others.

This is only a positive development for the stockholders IMO.

Fred93

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Re: Lending Club Is A Bank
« Reply #13 on: February 21, 2020, 02:11:14 AM »
They still get to decide which loans they'll hold, and which ones they'll offer up to others.

Sanborn from the earnings call...
Quote
And as Tom mentioned, our thinking out of the gate subject to regulatory approval is really the only hold 10% on our balance sheet. That 10% will be randomly allocated as part of our scale program. So we won't be kind of competing in that way or picking loans. So, we think this will be viewed as a real positive.

What I expect them to do is set criteria, something like "grade A", ie loans that would be appropriate on a bank balance sheet, and then choose randomly among the loans meeting that criteria.  It is likely that some customers will complain, but likely the complainers will be banks who are after all competitors.


Quote
This is only a positive development for the stockholders IMO.

Yes.  That's surely what it was meant to be.



Rob L

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Re: Lending Club Is A Bank
« Reply #14 on: February 21, 2020, 10:47:56 AM »
Right now LC makes a much higher margin on institutional investments than they do on retail investments.  Years ago they set the fees for the retail platform too low.  They actually charge the institutional customers more!  [They charge institutional customers with a different kind of fee, so you have to do some work to compare the two.]

If you have the time could you expand a bit on this. I for one was not aware and it sounds like an interesting story.