LendingClub stock Plunges After CEO Quits, Firm Finds Loan-Sale Abuse

[jdaun]

http://www.bloomberg.com/news/articles/2016-05-09/lendingclub-plunges-after-ceo-quits-firm-finds-loan-sale-abuse

[jdaun]

Trying to understand what happened here ... details seem sparse.

From what little I can gather, LC knowingly sold $22 million in loans to an investor that didn't meet the investors criteria.  Am I on the right track?

Can anyone add a little more color/explanation to this?

A little more info ...   http://www.reuters.com/finance/stocks/LC/key-developments/article/3369102

[Fred]

http://www.bloomberg.com/news/articles/2016-05-09/lendingclub-plunges-after-ceo-quits-firm-finds-loan-sale-abuse

The $22 million of near-prime loans were sold to Jefferies Group, which didn’t take a loss because LendingClub later repurchased them, according to a person familiar with the matter who asked not to be identified discussing a private transaction. The sale was found to be “in contravention of the investor’s express instructions,” San Francisco-based LendingClub said in the statement.

Ouch!

Perhaps people will be dumping notes in Folio soon.   Will be interesting to see Folio activities in the next few days.

[dompazz]

I'm not sure what is the bigger offense.  A) the board found that the company has falsified records in the deal with Jefferies.  B) The CEO owned a stake in a company he wanted LC to invest in and neglected to tell anyone about the conflict of interest.

[rawraw]

Management changed the dates on the notes. My impression was they did this to fill an order that had to be done in a certain time frame. Manipulation of data is no good

Sent from my SAMSUNG-SM-G935A using Tapatalk

[Quackhead]

http://www.bloomberg.com/news/articles/2016-05-09/lendingclub-plunges-after-ceo-quits-firm-finds-loan-sale-abuse

The $22 million of near-prime loans were sold to Jefferies Group, which didn’t take a loss because LendingClub later repurchased them, according to a person familiar with the matter who asked not to be identified discussing a private transaction. The sale was found to be “in contravention of the investor’s express instructions,” San Francisco-based LendingClub said in the statement.

Ouch!

Perhaps people will be dumping notes in Folio soon.   Will be interesting to see Folio activities in the next few days.

Heck, if people are willing to sell some notes on Folio, Im willing to buy... at a discount of course ;-). I really dont see how this has any bearing on existing notes. I mean, how does this impact your typical LC (P2P) investor?

[yojoakak]

I don't know who this Jefferies Group is but they recently reported a loss. I'm guessing they were scrambling to figure out how to make it less bad and discovered some questionable dealings with LC that they unwound. How this lead to Leplache's resignation, I don't quite understand. If LC wanted to unload some shitty loans, I don't know why they wouldn't just put them on the regular note platform or Folio. Never been a shortage of suckers there.

"How bad was the first-quarter market swoon? Ask the Jefferies Group’s chief executive, Richard B. Handler.

The Wall Street investment bank, a unit of the Leucadia National Corporation, reported a $166.7 million loss for its first fiscal quarter, which ended in February, as tumultuous markets slammed equity and fixed-income trading, junk bonds and leveraged lending. Investors drained money out of the market on fears of economic growth and China’s stability, and companies put a stop to capital-raising, forcing Jefferies to pull back until the markets recovered.

“We are humbled,” Mr. Handler said of the quarter...."

http://www.nytimes.com/2016/03/16/business/dealbook/jefferies-reports-166-7-million-loss-in-quarter.html

https://en.wikipedia.org/wiki/Jefferies_Group

[Ran]

I would not go as far to put Jefferies as scapegoat. However, my take on this event is two folds:(1)it's not a financially significant event but LC made a huge deal out of it. That implies LC's internal control is not that bad considering it's a young company. And LC will definitely strengthen its internal controls and compliances. The new chairman Hans Harris was a executive at Citi and Visa, who carries a lot of experience on managing financial companies. This is actually a big plus for retail lenders concerning about platform risks. (2) the resigning CEO is a founder and his resign will cause some turnover inside LC and may hurt its growth aspect if the new CEO does not have the same sharp vision and leadership as him. And this is negative for LC stocks.

I don't know who this Jefferies Group is but they recently reported a loss. I'm guessing they were scrambling to figure out how to make it less bad and discovered some questionable dealings with LC that they unwound. How this lead to Leplache's resignation, I don't quite understand. If LC wanted to unload some shitty loans, I don't know why they wouldn't just put them on the regular note platform or Folio. Never been a shortage of suckers there.

"How bad was the first-quarter market swoon? Ask the Jefferies Group’s chief executive, Richard B. Handler.

The Wall Street investment bank, a unit of the Leucadia National Corporation, reported a $166.7 million loss for its first fiscal quarter, which ended in February, as tumultuous markets slammed equity and fixed-income trading, junk bonds and leveraged lending. Investors drained money out of the market on fears of economic growth and China’s stability, and companies put a stop to capital-raising, forcing Jefferies to pull back until the markets recovered.

“We are humbled,” Mr. Handler said of the quarter...."

http://www.nytimes.com/2016/03/16/business/dealbook/jefferies-reports-166-7-million-loss-in-quarter.html

https://en.wikipedia.org/wiki/Jefferies_Group

[LonghornSF]

I don't know who this Jefferies Group is

They're one of the larger middle market investment banks out there. Quite well known in the investment banking space.

I'm guessing they were scrambling to figure out how to make it less bad and discovered some questionable dealings with LC that they unwound. How this lead to Leplache's resignation, I don't quite understand.

Reading between the lines, it's pretty clear that two things happened here:

1) Renaud and some senior managers were involved in changing the origination dates of the loans sold. Why would they do this? It's unclear, but perhaps they were under pressure to meet an earnings target or they had a funding squeeze. There are several possibilities and none are positive. This also points to a very poor internal controls system.

2) Renaud attempted to get LC to buy a fund or company that he was already an investor in without disclosing his interest. This is blatant deception.


Neither of the above two items are deal killers financially, but it raises a lot of questions about Lending Club. It sounds like Renaud was running it like his personal kingdom. What other chickens will come home to roost?

[dompazz]

How this lead to Leplache's resignation, I don't quite understand.

According to CNBC (which was according to unnamed sources) when the board started looking into the data manipulation, Laplache attempted to obfuscate and was "less than forthcoming." 

As rawraw said, "data manipulation is no good."  LC sells notes to investors based on trust.  Trust that they are giving us what they say they are giving us.  If they back dated a few loans to fulfill an order from an investment bank, what might they have done to us?

In another thread, someone called a potential run on the bank.  That's an apt metaphor.  If investors do not continue to add funds (let alone reinvest payments) then LC faces a funding crisis.  LC is barely profitable and they need capital to grow to a place where they can be profitable.  No investors = no growth.  No growth -> no capital.  No capital = no Lending Club.

I mean, how does this impact your typical LC (P2P) investor?

As discussed a bunch, the status of notes in a bankruptcy situation is uncertain.  No Lending Club = Bankruptcy which means we MIGHT or MIGHT NOT get paid on the notes we bought.

The board understand all of this.  Investors are the heart of LC and without them, the business is gone.  The best thing I see from this situation is that the board is strong and independent.  They grabbed the bull by the horns, and fired a wildly popular CEO.  The band-aid got ripped off and they hope to move on.  If they let this fester, they ran the risk of the WSJ/whoever scooping this which would have been worse.  In doing what they did, they are signaling to investors that the board has their back. 

[BruiserB]

Just listened to the replay of the conference call.  Wasn't able to learn much beyond what's been reported, but it is clear that the management team in place made a tough decision to do the right thing.  That raises my confidence.  But the uncertainty on how other investors will perceive this and the possibility that there may yet be fire from the smoke shakes my confidence.  A sad day for sure, hopefully not a disastrous one.

Wondering how the results would have been perceived absent this news?  Seems like things were in line with expectations.  I've always been bothered by LC's seeming obsession with managing loan issuance to manage results....wondering if the impropriety was related to that, especially since it seems to have been at very end of Q1 and beginning of Q2.

[LonghornSF]

I've always been bothered by LC's seeming obsession with managing loan issuance to manage results....wondering if the impropriety was related to that, especially since it seems to have been at very end of Q1 and beginning of Q2

I've always laughed at how people have touted this as a good thing. "Look how smooth Lending Club's originations are vs. Prosper." It's been clear from very early on that LC has manipulated its originations to paint a favorable picture to investors. While massaging the origination data, i.e. pushing forward or back loan issuance a few days, isn't the end of the world, it makes me wonder what else they've been manipulating. Didn't their Chief Risk Officer leave recently too?

[elumbra]

Just got this from Lending Robot.  Anyone with a Lending Robot account probably got this as well.

Dear client,

You may have heard the news that Lending Club’s CEO Renaud Laplanche was forced to resign this morning, following the discovery of an improper sale of loans to an institutional investor.

Here’s the impact for individual investors in general, and LendingRobot clients in particular: zero.

That deal concerns institutional investors, and sadly illustrates the risks of dealing with ‘packages’ of loans rather than managing portfolios on a loan-per-loan basis. In addition, the underwriting of the loans themselves is not in question, only that the package of loans sold did not match the investor's investment criteria. No money was embezzled.

By using LendingRobot, you have access to individual loans, not opaque bundles. Furthermore, Lending Club assets are held by an independent third party, a qualified custodian, which means they can’t misrepresent the notes and cash in your account.

Today, like it happened yesterday and will happen again tomorrow, hundreds of thousands of borrowers will make a payment towards their Lending Club loans, some of them trickling down to your account as they should. It has nothing to do with the Lending Club stock price, and we still have the utmost trust in the management of this company.

Steady returns,
The LendingRobot Team

[investny]

Didn't LC raise interest rates sometime in April. I wonder if Jefferies wanted to buy higher interest notes and LC changed origination dates on older notes to look like they had higher interest rate???

[lascott]

I would not go as far to put Jefferies as scapegoat. However, my take on this event is two folds:(1)it's not a financially significant event but LC made a huge deal out of it. That implies LC's internal control is not that bad considering it's a young company. And LC will definitely strengthen its internal controls and compliances. The new chairman Hans Harris was a executive at Citi and Visa, who carries a lot of experience on managing financial companies. This is actually a big plus for retail lenders concerning about platform risks. (2) the resigning CEO is a founder and his resign will cause some turnover inside LC and may hurt its growth aspect if the new CEO does not have the same sharp vision and leadership as him. And this is negative for LC stocks.

I don't know who this Jefferies Group is but they recently reported a loss. I'm guessing they were scrambling to figure out how to make it less bad and discovered some questionable dealings with LC that they unwound. How this lead to Leplache's resignation, I don't quite understand. If LC wanted to unload some shitty loans, I don't know why they wouldn't just put them on the regular note platform or Folio. Never been a shortage of suckers there.

"How bad was the first-quarter market swoon? Ask the Jefferies Group’s chief executive, Richard B. Handler.

The Wall Street investment bank, a unit of the Leucadia National Corporation, reported a $166.7 million loss for its first fiscal quarter, which ended in February, as tumultuous markets slammed equity and fixed-income trading, junk bonds and leveraged lending. Investors drained money out of the market on fears of economic growth and China’s stability, and companies put a stop to capital-raising, forcing Jefferies to pull back until the markets recovered.

“We are humbled,” Mr. Handler said of the quarter...."

http://www.nytimes.com/2016/03/16/business/dealbook/jefferies-reports-166-7-million-loss-in-quarter.html

https://en.wikipedia.org/wiki/Jefferies_Group

Hans Morris not Hans Harris

https://www.lendingclub.com/public/board-of-directors.action

Hans Morris
General Atlantic

Hans Morris served as president of Visa Inc. from 2007 to 2009, where his primary responsibilities included managing all markets in which Visa did business. Hans tenure coincided with the global payments technology company’s initial public offering and a reorganization that merged several separate businesses into a new company.

Hans previously spent 27 years at Citigroup and its predecessor companies in assorted leadership positions, with his final position as CFO and head of finance, technology and operations for Citi Markets and Banking. He is currently an advisory director at growth equity firm General Atlantic, where he leads investments in the financial services industry and is a director for three portfolio companies.

Morris graduated cum laude from Dartmouth College in 1980. He serves as chairman of the board of trustees of the Massachusetts Museum of Contemporary Art (MASS MoCA), a trustee of the Jacobs Pillow Dance Festival, and is chairman of the board of overseers at the Hopkins Center for the Arts at Dartmouth College.