LC created LCA to accommodate institutional investors. LC needs LCA as much as the institutional investors.
How much are they making on LCA relative to the rest of the business?
Management fee, charged to Certificate holders:
Up to 1.25% annualized fee, based on month-end capital balance.
LCA earned management fees from investors in Certificates totaling $0.7 million and $0.1 million for the nine months ended December 31, 2012 and 2011, respectively.
Just for a better perspective:
For the nine months ended 12/31/2012, LC made $26 million on origination, and $1.5 million on servicing.
Forgive me if I'm missing something here, but how does this translate to LC "needing" LCA? If LCA only earned them $0.7M, it's certainly not necessary to their core business. If you back the numbers out, the LCA fees increased $0.6M, which roughly translates to new inflows of -
at most - $64M to the LCA product during 2012 based on that 1.25% annualized fee figure. This is hardly important when they originated a total of $718M in loans during that time period. Sure, it helps the business to a certain extent, but to me, something just doesn't seem right about the marketplace offering its own advisory service. It is non-essential and I'd feel better about potential conflicts of interest if it were spun off into its own company.
I can't find any opinion pieces or specific laws prohibiting this, but I'll say it again, this time as a question - would it be wrong for a stock exchange to own a hedge fund? If the NASDAQ owned a hedge fund that only dealt in NASDAQ-traded securities, is there not some sketchiness to this situation? Perhaps I am mistaken but it just doesn't seem right to me.