Author Topic: 10-Q is Posted  (Read 4254 times)


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Re: 10-Q is Posted
« Reply #15 on: May 16, 2016, 11:59:04 PM »
- they threw RL under the bus when the 10-Q referred to the "tone at the top." Or maybe I should say they backed over him again.


- not too surprised that they called out the loss in funding, but I wonder what their definition of "substantial" is.

Here's my take.  Look at the chart from the Q1 presentation

The yellow part is the hedge fund guys.  Note that they are lower in Q1 than before.  That's driven the stress on LC and the rest of the industry.  Hedge fund guys pulled back.  Note the blue managed accounts.  Same thing.  Big stress.  Here's this company trying to double every year, and then suddenly the two big growth buyers start pulling back. 

The saviour has been the banks, who have finally kicked in.  Also, LC finally decided to endorse securitization, which gave them an opening to another big sector. 

Now, post scandal, I suspect the red stuff has gone suddenly to zero.  You can see visually what an important fraction of LC's sales it has become.  The really big question is how long will this component stay zero.  Will LC be able to satisfy the banks quickly, and get back rolling within the quarter?  When within the quarter?

This affair is very high profile now.  Cover of WSJ.  Federal grand jury. ...  The process to getting banks turned back on is going to be slow.  It is not the decision of one guy at the bank now.  Risk committees and compliance people and whatnot are going to be involved.  I can't guess the outcome, but I know it ain't gonna be quick.

Quarterly (Q/Q) gains in originations starting at the beginning of 2015: 15.6%, 16.9%, 16.9%, 15.4%, and 2016Q1 6.6%

There is now no way in hell that Q2 can be have an increase in originations over Q1.  So how far down will it go?  I'm thinking that for a time (hopefully not the whole quarter) the red band goes to zero, and yellow and blue also have a decrease.  Hey, they were on the way down already.  I don't know about the grey.  Probably it will stay flat.

So I'm guessing Q2 originations could easily be down 25%.  Down 50% is also within the realm of possibility. This means they are overstaffed.  (Everywhere except legal dept.)  Remember they were on a roll, hiring assuming 2016 originations would grow like 2015.  I suggest a small staff reduction.  Q2 will still produce a loss, but I'm thinkin' it is possible to make 2016 earnings net positive, if they get squared away, only drop -25% in Q2, and are able to grow originations by 25% in each of Q3 & Q4.  I'm thinkin' that without layoffs, 2016 is a loss year.  It is hard to know how fast they have cut hiring, or how fast they can get institutional demand to return, so there are guesses involved in any model.

This scenario delays substantial profitability, so reduces the value of the stock in a big way.  Delayed profitability means they may need to use some of that cash still on the balance sheet from their IPO just to fund themselves in the interim.  Some of this the market saw coming (reduced demand), which is likely why the stock was already down big before the scandal broke. 

- it will be VERY interesting to see what type of "various arrangements with new or existing investors" they pursue to secure funding. Perhaps they give one of their institutional loan buyers a chunk of LC equity in exchange for agreeing to buy a minimum amount of loans?

Yea those were interesting words in the 10Q.  I'm glad they're thinking broadly.  I was thinking about possible buyout by a big bank or something, but this is a sort of partial sellout.  If there are banks who wished they were owners of this enterprise, this might be a way to get capital.  It is possible that an investment from the right bank could help restore bank willingness to buy the product.

On the other hand, if they start offering stock (or rights, or warrants or whatever) to some guys who buy loans, the other guys are gonna be calling up sayin' "What about me?"  Like blackmail, there may be no end to this.
« Last Edit: May 17, 2016, 12:03:24 AM by Fred93 »


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Re: 10-Q is Posted
« Reply #16 on: May 17, 2016, 12:08:32 AM »

On the other hand, if they start offering stock (or rights, or warrants or whatever) to some guys who buy loans, the other guys are gonna be calling up sayin' "What about me?"  Like blackmail, there may be no end to this.

Exactly what I was thinking when I read that too.
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