Author Topic: Is LendingClub Broken?  (Read 14433 times)

sigclem

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Re: Is LendingClub Broken?
« Reply #15 on: June 06, 2016, 11:00:45 AM »
The question I am not seeing answered is what happens to the thousands of borrowers who just say screw it and don't wait for 30 days for LendingClub to list their loan.  They are likely gone forever.  The most profitable borrowers for LendingClub are the repeat borrowers.  I would also imagine they are the least risky in most cases, if they have paid off a loan and shown an ability to repay. 

I would actually argue they should be taking some of their $850M in cash and funding a ton of loans if they need to.  The cost of acquiring a customer is significant.  These customers who don't wait for 30 days for their loan to be listed will have had a terrible experience and be gone forever.

I think the next 30 days are make or break for LendingClub, and for those of you who have had success earning a return on your investment buying notes.  Discover Personal Loans or SoFi, or any others with adequate capital, will end LendingClub if they don't quickly figure out how to fund their backlog of loans.

SLCPaladin

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Re: Is LendingClub Broken?
« Reply #16 on: June 06, 2016, 12:34:28 PM »

I would actually argue they should be taking some of their $850M in cash and funding a ton of loans if they need to.  The cost of acquiring a customer is significant.  These customers who don't wait for 30 days for their loan to be listed will have had a terrible experience and be gone forever.

I think the next 30 days are make or break for LendingClub, and for those of you who have had success earning a return on your investment buying notes.  Discover Personal Loans or SoFi, or any others with adequate capital, will end LendingClub if they don't quickly figure out how to fund their backlog of loans.

I completely agree with you. LC is in between a rock and a hard spot: they can't afford to have approved loans go unfunded but if they start funding from their own balance sheet it puts them in a precarious situation. I think the lesser of two evils is to risk loans going unfunded. They absolutely can't afford for a backlog of loans to appear on the platform. This is extremely costly and damaging for multiple reasons: unfunded borrowers go elsewhere resulting in wasted marketing dollars from lost customers; LC loses origination revenue and the future loan servicing revenue that comes with it; a funding shortfall further enforces the narrative that there is something inherently wrong with the quality of the notes on the platform. All of this leads to a vicious cycle.

Either LC needs a big institutional investor to step up. If and when this occurs, they need to publicize it loud and clear so that knock-on effects will occur and more institutional investors and retail investors feel at ease. LC needs to to simultaneously entice wary retail investors to come back even while they are courting institutional money. I think that is what they are trying to do with the IRA incentive and the cash incentive for new loans. How effective these measures are remains to be seen. But if these measures are woefully inadequate, they may not get a second chance to staunch the flow of capital leaving the platform.

I'm sort of baffled that the BRV hasn't been announced. The only real downside I see to putting this in place is that, rather than shore up confidence, announcing the creation of a BRV runs a risk of having the opposite effect. The very news of a BRV at this point in time may bring unwanted media attention. Spooked share holders may ask, "Why does LC need to do this? Are things worse than I realize?"
« Last Edit: June 06, 2016, 12:40:58 PM by SLCPaladin »

nonattender

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Re: Is LendingClub Broken?
« Reply #17 on: June 06, 2016, 01:29:17 PM »
I'm sort of baffled that the BRV hasn't been announced.

It's an uncertainty-killer, for sure.  One would think that finance and econ guys would understand that uncertainty is the enemy...

But maybe some bean-counter-without-a-soul did some math and it turns out to cost them less to just offer a 1% bonus to retail.

"Hey, yeah, I'd like to actually, you know, own the stuff that I'm buying?  Can you guys do that or's that like asking for the moon?"

"Well, sir, I can't help you with that, but we are offering a one-time 1% bonus that could boost your returns, quite substantially..."

"Huh.  Well, I wanted to ... I read this stuff and it says... 1% you say?  Is that like on, just new money I put in, or, like, on every..."

(***and there goes the BRV, thank you for calling Comcast, where we both respect and appreciate you as our loyal customer***)
« Last Edit: June 06, 2016, 01:32:46 PM by nonattender »
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AnilG

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Re: Is LendingClub Broken?
« Reply #18 on: June 06, 2016, 01:53:11 PM »
It is just a matter of priority. There are limited management resources to dedicate to a project so LC management has to decide where to spend their limited resources. There are about 150,000 retail lenders, even if average account balance was $20,000, there is only $3 billion in provided capital by retail lenders. Assuming everyone lent to 36 month loans, it only leaves $1 billion in retail capital for loan originations every year. Pursuing several dozen institutional lenders that could each put in more than a billion a year is more cost-effective with better return on effort and better use of limited resources and thus focus of management.

I'm sort of baffled that the BRV hasn't been announced.

It's an uncertainty-killer, for sure.  One would think that finance and econ guys would understand that uncertainty is the enemy...

But maybe some bean-counter-without-a-soul did some math and it turns out to cost them less to just offer a 1% bonus to retail.

"Hey, yeah, I'd like to actually, you know, own the stuff that I'm buying?  Can you guys do that or's that like asking for the moon?"

"Well, sir, I can't help you with that, but we are offering a one-time 1% bonus that could boost your returns, quite substantially..."

"Huh.  Well, I wanted to ... I read this stuff and it says... 1% you say?  Is that like on, just new money I put in, or, like, on every..."

(***and there goes the BRV, thank you for calling Comcast, where we both respect and appreciate you as our loyal customer***)
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Fred93

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Re: Is LendingClub Broken?
« Reply #19 on: June 06, 2016, 02:51:40 PM »
The question I am not seeing answered is what happens to the thousands of borrowers who just say screw it and don't wait for 30 days for LendingClub to list their loan.  They are likely gone forever.  The most profitable borrowers for LendingClub are the repeat borrowers.

I don't think that's how the business works.  There are very few repeat borrowers. 

To obtain borrowers, LC has to advertise, work thru loan acquisition channels such as brokers, etc.  The can modulate the rate at which borrowers arrive by modulating the level of their advertising and other borrower acquisition activity.  When the sudden dip in demand occurred, there were borrowers in the input queue in greater numbers than demand could support, so a few were disappointed.  That's not excellent, but its not an ongoing problem, because LC can just advertise less, pay sources less, and the next week fewer will arrive, better matching demand.

Managing this supply vs demand is a normal everyday part of LC's operation.


Quote
Discover Personal Loans or SoFi, or any others with adequate capital, will end LendingClub if they don't quickly figure out how to fund their backlog of loans.

I don't think there is any backlog of loans at this point.

sigclem

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Re: Is LendingClub Broken?
« Reply #20 on: June 06, 2016, 04:06:28 PM »
Fred93 - thanks for the insight.

My first question on the forum was trying to figure out was in regards to a friends loan, that applied on May 20th, which I could not see on the platform.

I guess I should define backlog as in - loans where people have applied but the loan is not available on the retail platform.  As I look today, specifically at D rated 60 month loans, the application dates for those loans is May 8th.  The date is increasing by 1 day (in general) each day that passes.  So tomorrow I expect to see May 9th. 

I am defining this as a backlog of loans.  There are more D rated 60 day loans that have been applied for, then LendingClub is allowing to reach the platform.  Significantly more if you consider that the current dates are May 8th.

I could be missing something but it feels like supply exceeds demand significantly (in the 60 month loan department)

Fred93

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Re: Is LendingClub Broken?
« Reply #21 on: June 06, 2016, 04:24:32 PM »
I guess I should define backlog as in - loans where people have applied but the loan is not available on the retail platform.

Difficult to figure that way, because you don't see all the loans.  LC splits 'em into "whole" vs "fractional" marketplaces, and you only see the fractional.  (I assume ... I don't actually know anything about you.)  Historically around 2/3 go to the whole marketplace, so that's a lot you don't see.  So just because you don't see a loan, doesn't mean its in a backlog.

There's a strange change that was made in the early part fo 2016 which confounds this.  In the past, loans would go to the whole loan marketplace, and then if they hadn't been purchased there in 24 hours they would fall to the fractional market.  They stopped doing that.  I don't know why.  I asked, but got some dumb answer.  I figure it was just "the guy" who does the allocation trying something different.  Seems like the wrong thing to me, because under this policy a loan might get stranded in the whole loan marketplace and not bought by anyone.  I haven't looked at the data recently to see if they kept this policy or have returned to the old policy. 

We used to be able to gain insight into things like this by processing the historical data files.  They contained fields showing application date, etc, so you could compute statistics on days-to-fund, etc.  At some point a few years ago LC got concerned that competitors could use such data for competitive purposes, so they redacted the dates so they all show the first day of the month.  Hideous, but that's what they did.


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As I look today, specifically at D rated 60 month loans, the application dates for those loans is May 8th.  The date is increasing by 1 day (in general) each day that passes.

I'm thinkin' that you're seeing the last of the applications that came (in too much volume) just about the time RL's resignation hit the news.  The volume of new listings jumped down at that time (in response to reduced demand I presume), and is now slowly increasing again. 

AnilG

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Re: Is LendingClub Broken?
« Reply #22 on: June 06, 2016, 04:35:05 PM »
Supply exceeding demand is temporary phenomenon caused by May 9th event. Since then, LC has significantly scaled back borrower acquisition efforts and increased investor acquisition efforts. You can see this by just watching the banner ads on different p2p lending, finance, investing sites and blogs. As LC already had committed to borrowers through direct mail channels and paid for borrowers leads through referral channels, as long as borrowers are willing to wait, LC is listing their loans on the platform. Once this bulge of borrowers acquired from marketing efforts that were already underway by May 9th dissipates, we will see more balanced supply and demand. Few years ago the typical wait for borrowers was 7-10 days for loans to be funded and issued. I expect we are returning to those norms.

Fred93 - thanks for the insight.

My first question on the forum was trying to figure out was in regards to a friends loan, that applied on May 20th, which I could not see on the platform.

I guess I should define backlog as in - loans where people have applied but the loan is not available on the retail platform.  As I look today, specifically at D rated 60 month loans, the application dates for those loans is May 8th.  The date is increasing by 1 day (in general) each day that passes.  So tomorrow I expect to see May 9th. 

I am defining this as a backlog of loans.  There are more D rated 60 day loans that have been applied for, then LendingClub is allowing to reach the platform.  Significantly more if you consider that the current dates are May 8th.

I could be missing something but it feels like supply exceeds demand significantly (in the 60 month loan department)
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nonattender

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Re: Is LendingClub Broken?
« Reply #23 on: June 06, 2016, 06:03:58 PM »
Nonattender and others repeatedly remind me that in the meantime, management might go insane and take on huge debt for some stupid purpose.

Stupid like... levering up that cash to fund multiple billions of loans every Q?

Remember that the last innovation in this industry was the "hybrid" model.
("Nobody will buy all these loans!  Hey, I know; we'll just do it ourselves!")

More "hybrid" laundry baskets being (sort of, grudgingly) disclosed by other lending platforms...

http://www.cnbc.com/2016/06/06/on-deck-and-intuit-funding-setup-resembles-lendingclub.html

I feel bad for the guy whose job it is to now try to tell regulators that these really aren't 'banks'.

« Last Edit: June 06, 2016, 06:10:50 PM by nonattender »
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Fred93

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Re: Is LendingClub Broken?
« Reply #24 on: June 06, 2016, 06:58:09 PM »
More "hybrid" laundry baskets being (sort of, grudgingly) disclosed by other lending platforms...
http://www.cnbc.com/2016/06/06/on-deck-and-intuit-funding-setup-resembles-lendingclub.html

Not clear.

From Ondeck's 10Q...
Quote
In the second quarter of 2015, we acquired a 55%  interest in On Deck Capital Australia PTY LTD ("OnDeck Australia") with the remaining 45% owned by non-affiliated parties. In the third quarter of 2015, we acquired a 67% interest in Lancelot QBFOD LLC with the remaining 33% owned by Intuit Inc. ("Intuit"). We entered into the transaction involving OnDeck Australia with local partners to facilitate providing financing products to small businesses in Australia. We and Intuit jointly invested in Lancelot QBFOD LLC to provide integrated access to line of credit financing to Intuit customers utilizing Intuit's customer data. We consolidate the financial position and results of operations of OnDeck Australia and Lancelot QBFOD LLC. The noncontrolling interest, which is presented as a separate component of our consolidated equity, represents the minority owners' proportionate share of the equity of the jointly owned entities. The noncontrolling interest is adjusted for the minority owners' share of the earnings, losses, investments and distribution.

So when they say they "jointly invested in Lancelot" does that mean they own part of a venture that makes loans using money from some 3rd party source, or do they mean that their own money funds the loans?  This makes a huge difference to me. 

The article writer and you are presuming it is the later.   

Also they don't tell us the amount of money involved.  That matters a lot too.

A little more disclosure would help.

By the way, I agree with you about part of this issue.  The lending industry, and the hedge funds guys, and probably banks, have all manner of (... I'm searching for a polite word...) complexities under the covers that us normal folks don't see and don't normally understand.  I'm learning a lot more about these things lately, not only because of things going on at LC, but also in a small lender I invested in awhile back.


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I feel bad for the guy whose job it is to now try to tell regulators that these really aren't 'banks'.

For me, banks hold deposits, and are government-insured, so must follow rules from their insurer (the government).  I do realize there are a wide ranging set of opinions, including issues such as systemic risk and "too big to fail" and whatnot.  But for me, the answer is pretty simple.  If the government had kept the rules simple, there wouldn't be any TBTF banks.  I'm for keeping the rules simple (simpler) now.  Deposits = bank regulation.
« Last Edit: June 06, 2016, 07:04:18 PM by Fred93 »

nonattender

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Re: Is LendingClub Broken?
« Reply #25 on: June 06, 2016, 08:50:21 PM »
A little more disclosure would help.

A lot more.  And if this level of disclosure ("an arrangement exists, characteristicless and of unknown magnitude/structure") is what the public companies feel they can reasonably disclose, one has to wonder what some of the private companies are doing & not disclosing.

Quote
By the way, I agree with you about part of this issue.  The lending industry, and the hedge funds guys, and probably banks, have all manner of (... I'm searching for a polite word...) complexities under the covers that us normal folks don't see and don't normally understand.  I'm learning a lot more about these things lately, not only because of things going on at LC, but also in a small lender I invested in awhile back.

The oldest line on that is "the art of banking is to conceal risk"...  If this industry is really 'new', a lot more transparency could do.

Quote
For me, banks hold deposits, and are government-insured, so must follow rules from their insurer (the government).  I do realize there are a wide ranging set of opinions, including issues such as systemic risk and "too big to fail" and whatnot.  But for me, the answer is pretty simple.  If the government had kept the rules simple, there wouldn't be any TBTF banks.  I'm for keeping the rules simple (simpler) now.  Deposits = bank regulation.

Yeah, the non-deposit-taking is the sort of argument of last refuge.  That goes out the window when you find out that xyz entities that are buying the loans are levering up.  How do they do that?  Through a deposit-taking, FDIC-regulated bank.  It's indirect & abstracted out by a degree or two, but the effective reality is the same (maybe worse, as it concentrates the risk into larger, discrete entities rather than spreading it out - they're kind of effectively stealing the banks' diversification ability/functions, too, in a way, if you think about it from a regulatory/bank angle).  LC, in the old days, used to have a line with SIVB - Renaud referred to that as "priming the pump", back then - which was a point of contention until they got enough buyers to fund all of the loans (or, at least, said that they did) and then they became a "marketplace"...  Everyone else became one, too - at least in PR.  Now I don't know - and I also suspect that most people running these entities (and the various agencies who don't know if they're supposed to be regulating them) don't know either - what to call them, how to treat them, etc...  A coupla months ago there was the "Marketplace Lending Association" to distinguish between "good" (less-risky) platforms that had actually had marketplaces / didn't hold credit risk and "bad" (risky) ones which didn't have marketplaces / did hold credit risk...  Now, who knows what the hell is going on with any of them, public or private...

Apparently, not even the people running the largest of them know what business it is that they're in or have any idea what to call it...

I think the only thing upon which they can all probably agree is what they definitely don't want to be called - but certainly do look like.

One of the morals of the story may wind up being:  If you don't want to be (or be called) a "bank", do not go hire a bunch of bankers.

Like anyone else in any other profession, they have a tendency to want to do what they are used to doing --- and it's nothing "new".


ETA:  I might owe Cagney/SoFi another look...  While they're doing the captive fund thing, too, and their operations/structure looks a bit like it's too bank-y, their marketing/messaging, while vague, at least seems to be grappling with these conceptual issues - before anyone else.  They might be halfway to some sort of decent innovation, if they don't tangle themselves up in financial engineeering... I mean, they are at least trying to get their customers laid - instead of screwing them.  That's certainly not bank-like. ;)
« Last Edit: June 06, 2016, 09:53:43 PM by nonattender »
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Rob L

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Re: Is LendingClub Broken?
« Reply #26 on: June 06, 2016, 09:26:22 PM »
Ya gotta love him. What's this LC stuff anyway; Money for Nothing? When all is said and done we're all "Brothers in Arms"; no?
http://www.markknopfler.com/
« Last Edit: June 06, 2016, 09:30:47 PM by Rob L »

SLCPaladin

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Re: Is LendingClub Broken?
« Reply #27 on: June 06, 2016, 11:43:06 PM »
Out of curiosity, how would you react if LC did decide to start using some of their balance sheet to buy its own loans? Would this be a good or a bad thing? As for myself, I can't decide. Part of me wants LC to buy a portion of their own loans and embrace the whole hybrid approach (you know, the whole idea of "being willing to eat your own dog food"). Peter alluded to this in his latest post on Lend Academy, although he cited different reasons for his embrace of a hybrid model.

If LC bought some portion of their loans, it would signal to me that - at least in theory - they would pay more attention to underwriting, or at the very least they would adapt more when they noticed a deterioration of credit quality. It might also make me more of a willing partner in loans.

On the other hand, if LC did start buying loans en masse, either out of necessity or change in strategy, it could lead to cherry-picking or some other form preferential treatment for LC's notes. For this reason, were LC ever to begin buying notes, I would want them to do so in agnostic sort of way, say X% of all fractional loans.

I can't really decide if this is something that I would like to see as a retail investor, but it was just something I was thinking about and would be curious to hear from others.
« Last Edit: June 06, 2016, 11:46:35 PM by SLCPaladin »

jennrod12

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Re: Is LendingClub Broken?
« Reply #28 on: June 07, 2016, 12:54:49 AM »
If LC starts buying loans en masse, that will make quick work of their cash reserves - hence the worries about bankruptcy.

Jenn

bobeubanks

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Re: Is LendingClub Broken?
« Reply #29 on: June 07, 2016, 01:25:45 AM »
If LC bought some portion of their loans, it would signal to me that - at least in theory - they would pay more attention to underwriting, or at the very least they would adapt more when they noticed a deterioration of credit quality. It might also make me more of a willing partner in loans.

What would really signal confidence in their underwriting would be for them to buy the remainder of any loan not funded within a certain time frame.