Author Topic: LC going out of business  (Read 3375 times)

JohnnyP

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LC going out of business
« on: April 09, 2017, 01:31:46 AM »
Does anybody fear LC going out of business? I have been investing since 2011 and really like LC for many reasons. However, I fear there is a decent chance they will not be around in 4-5 years. Every year there is a new competitor. The Renaud Leplanche announcement is just the latest announcement. Note that Leplanche will not be using Peer-to-Peer. He likely knows more about marketplace lending than anybody on the planet and he decided not to go Peer-to-Peer. There is probably a reason for it. My opinion - it probably is not efficient. Then there is Marcus - same thing.

Today's situation of lower returns is just a blip caused by low underwriting standards (by LC and everybody else) and competition. Throw in a couple more significant variables like a tanked economy, over-regulation, and/or another breach of trust and some companies will not make it.

Maybe I would feel better if I had more faith in the unproven/questionable bankruptcy vehicle. I heard the institutional investors have some sort of upgraded "bankruptcy vehicle". If the guys that really know what is going on demand an "upgrade" what is wrong with what we have?

Does anybody else have these fears? Somebody validate my irrational fears or make them go away. What do you think? Does anybody cut back their investment allocation based on these fears?


storm

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Re: LC going out of business
« Reply #1 on: April 09, 2017, 03:14:54 AM »
Back in 2007-2008, interest rates were high, credit was tightening, and the stock market was tanking.  LC and Prosper gave small investors a chance to profit from the loan market without investing in a traditional bank.  Now, it is almost the exact opposite; interest rates are relatively low and there is lots of competition in the loan market.  Large investors looked down at us guinea pigs, determined there is money to be made here, and have thrown huge sums of cash at Lending Club and Prosper. Iím not worried about LC going out of business.  Iím worried they are going to shut down the marketplace, securitize the loans, downgrade expectations, and tell small investors to take a hike.  Even if Renaud Laplanche spun up another marketplace, I donít think I would trust my money with him again.  LC still has integrity issues from the Laplanche days they need to work out, but they are so flush with institutional money, they just donít care.

Fred93

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Re: LC going out of business
« Reply #2 on: April 09, 2017, 06:10:42 AM »
Does anybody fear LC going out of business?

No.  They are the biggest and most successful in the field by far, and they have a huge amount of money in the bank.  (ie cash on the balance sheet)  They are very safe.


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Throw in a couple more significant variables like a tanked economy, over-regulation, and/or another breach of trust and some companies will not make it.

Don't need any of those things to happen.  There are hundreds of P2P or marketplace or fintech lenders or whatever you call them lately, and it seems like I read about one going bust about monthly.  However, LC is the least likely of any of them to fold.  LC is more likely to be the last man standing.


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The Renaud Leplanche announcement is just the latest announcement. Note that Leplanche will not be using Peer-to-Peer. He likely knows more about marketplace lending than anybody on the planet and he decided not to go Peer-to-Peer.

The few lenders who do take retail investment (ie P2P) do it because that's where they started.  If they started today, I don't think any of them would start up a retail market.  They make less margin on the retail business, and the big growth opportunities now appear to be with the bank customers.  (Now if the banks leave for some reason, these guys will all  turn around and court us retail customers again, but that won't happen until some event forces it.)

They all aim where the margin and growth appear to be.  Can't really blame them for that.  Doesn't help you and me of course.


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I fear there is a decent chance they will not be around in 4-5 years.

Just do a little arithmetic on the balance sheet and you will see how much of a screwup it would take to bust this company.  Even if sales volume stopped growing and even went down significantly and management were slow to respond by downsizing staff, they have enough money on the balance sheet to keep running for many years without raising additional capital. 

Don't get me wrong.  It is possible to wreck anything.  It just isn't likely.

The competitive environment will continue to evolve.  Nothing ever stays the same.

I think there's a fair chance that the retail market will be shut down due to reduced volume within 5 years.  That will be especially likely if retail investers continue to see shrinking returns.  You can already see that their attention is on the banking business, their new high-level hires are banking people, etc.  The retail business is a shrinking fraction of LC's revenue, so a few years from now a retail shutdown wouldn't impact LC much.



rawraw

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Re: LC going out of business
« Reply #3 on: April 09, 2017, 07:18:18 AM »
Retail may be lower margin, but I haven't seen anything to prove that.  I think companies are targeting institutional money because it allows much faster growth to achieve scale.  But just like in other areas of finance, I'd assume that institutions will use their size to get lower fees than retail. 

scotty0318

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Re: LC going out of business
« Reply #4 on: April 10, 2017, 10:43:54 AM »
If/when retail does shut down, thoughts on how that transition will take place?

It'll probably be just as simple as us being able to view our loans but no longer fund new ones.

anabio

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Re: LC going out of business
« Reply #5 on: April 10, 2017, 11:00:37 AM »
If/when retail does shut down, thoughts on how that transition will take place?
Maybe something as simple as gradually reducing the amount of fractional loans released to the retail market? Then as everyone disappears from the retail side eventually just saying there is not enough interest and officially terminate fractional sales...
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money