Did this get posted? LC is already using their cash for loans.
http://www.wsj.com/articles/new-lendingclub-mistake-shows-loan-demand-issues-persist-1465565247The new filing showed that LendingClub had bought $7.2 million worth of the notes itself in the period that was revised in May, the first time that LendingClub has held on to loans rather than immediately selling them to investors.
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That's rather disheartening to read, even if they only intend to hold the loans for 30 days.
Aarti Shahani over at NPR doesn't seem to think this is bad. In fact this is one of the two take-aways that he emphasizes should come from the LC fall-out:
http://www.npr.org/sections/alltechconsidered/2016/06/10/481474919/with-lending-club-disgraced-an-industry-looks-for-lessonsFrom the article:
Buying loans reduces cash, which is what standing between LC and an inability to continue to fund their operation. It also adds credit risk and potential moral hazard to the system. If they have to fund those mailings, this is probably the short term solution until they get back in equilibrium
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I will chime in that it's a bad idea for LC to buy and hold notes. If they're holding notes for 30 days or whatever as inventory so that they can sell a bundle of notes to an investor, then maybe that's ok.
Like I said before, with LC's cost of capital probably in the teens or higher, they have no business whatsoever investing their cash in notes that earn 7-8%. Period, end of story.
Do they even have a true cost of capital? Their stock has been down since the IPO so there is no empirical way to determine the cost of capital.
don't the notes beat the return on cash on the balance sheet?
the reason why they have so much cash is that investors at the IPO overpaid.
I don't understand the article.
424(b)(3) Prospectus filing listing the loans for which Member Payment Dependent Notes were issued. Just search EDGAR for LendingClub 424B3 filings
I was struck by the existence of a regulatory filing that indicated volume, since I wasn't aware of one. On this issue, I trusted WSJ since they've been very good on this so far IMO. And when I pull up LC on Factset, there are far too many filings for me to dig through.
A phrase I always loved is there are no mistakes in SEC filings. This quote is around disclosures in 10Ks and 10Qs. LC disclosed they may invest in their own loans last filing. Then we see them doing just that.
You'll have to forgive me evaluating the possibilities, but this is how it seems to end up. Either LC is doing this temporarily due to having to fund some of those direct mailings (I still haven't found any support this is the case), they originate loans and are able to sell them at a later date, or management continues to fund notes in anticipation of an increase in investor demand that doesn't come.
This last option can be worrisome, as management is going to be under stress and this solution may seem attractive. I have trouble accessing the probabilities of these events given the untested nature of the funding base coupled with the correlation between investor demand and counterparty risk.
And it's unfair to call retail fragile. Institutions are just as fickle. All these issues seem to stem from the result of capital markets freezing in 1Q16. While I was following this trend during the quarter, I wish I would have made the connection of LCs impact. May have been a good trade.
Needless to say, I suspect this will be a topic of interest on the call if no other incidents occur.
Seems there are more distressed selling on Folio again.
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I published a blog post about three years ago detailing the Lending Club buying their own loans. Previously LC partially funded loans from their own balance sheet when lenders on platform didn't commit full amount. Originally, this was to show the viability of p2p lending. Personally, I don't mind Lending Club filling the funding short-fall gap from its Balance Sheet on temporary basis as long as the loans were partially funded first by the lenders on its platform (no whole loan purchase).
Is Lending Club still self-funding loans?
https://www.peercube.com/blog/post/is-lending-club-still-self-funding-loansSunday June 23, 2013, 10:49 pm
Hey, let's not kid ourselves; retail is NOT on LC's radar at the present time. Peter said as much in response to my comments on his blog post last week where I commented that the word "retail" wasn't mentioned. Think he's pretty in-touch with LC's latest.
I've heard in the past that LC valued its retail investors and saw them (us) as "sticky money" that's less fickle than the institutional flavor. That probably would have been true, but I give retail folks (in substantial numbers and those with significant money at stake) credit for knowing what counterparty risk means. In hindsight (yeah, always 20/20) their (our) loans should never have been on LC's balance sheet. Now that would have been "sticky money", and I believe there would have been a lot more of it. Would'a, could'a, should'a ...
I have an example I can share. During the crisis of '08-'09 I had quite a bit of money in E*Trade. Think their stock traded under $2.00 at one time and I knew (or thought) there was a chance they wouldn't make it. But my money wasn't on their balance sheet. My cash was swept into FDIC secured accounts and my securities were SIPC insured. The SIPC wasn't important so long as my holdings were in my name (well, not exactly but I'm on a roll here) and even if E*TRADE went bust it would not mean one iota to my holdings. So, I'm still an E*TRADE customer. I sincerely wish I was in the same situation with LC.
I reached out to the FT journalist. He said that LC told him directly they are obligated to fund those direct mail loans
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