Lending Club Keeps Pushing Its Comeback

The last 12 months have undoubtedly been a difficult period for marketplace lending pioneer Lending Club. In the year since the firm was rocked by the dual blows of the sudden departure of its charismatic founding CEO Renaud Laplanche and revelations that the company had intentionally mislead investors as to the quality level of its loans, it has been a laborious climb back to win over investors on Wall Street and within the marketplace itself.

But, as Q1 earnings hit last week, it seems clear that progress is happening — albeit at a fairly slow pace.

“We redeployed resources for growth and invested heavily in our technology platform in the first quarter,” said Scott Sanborn, the company’s president and CEO. “With continued strong investor demand, I am pleased with the acceleration we saw as we exited the quarter.”

So how did that acceleration shake out?

By The Numbers 

Net revenue in the first quarter of 2017 was $124.5 million, a five percent decrease from Q4. Sanborn noted that Q1 is historically difficult for the firm. Net loss clocked in at $29.8 million, and adjusted earnings per share came in at 2 cents.

Loan originations were down in Q1 — $1.96bn of loans in the most recent quarter, down slightly from the $1.99bn of the fourth quarter. But the silver lining is that banks appear to be coming back to the Lending Club platform as investors in loan packages. Bank funded 40 percent of total originations for the quarter, up from 31 percent in the fourth quarter.

Retail investors also expanded, though more slightly — reaching 15 percent, up from 13 percent in the prior quarter.

Lending Club also announced $2 billion originations, surpassing $26 billion in total loans since inception almost ten years ago and 2 million total consumers served on its platform.

Headwinds and Headaches 

Further adding to the headaches and headwinds, the credit markets have changed some — interest rates are trickling upward, and the large bank-backed and institutional investors are less enamored with marketplace lending as a margin source than they were a few years ago.

Moreover, investing in marketplace lending is not so profitable as it has been in the recent past, and returns to investors have dropped sharply.  Competition has forced down interest rates in the marketplaces to attract consumers with cheaper underwriting, and charge-offs have risen.

According to data from Orchard, a technology provider to the industry, total returns from an index of U.S. consumer loans came to 3.95 per cent last year, down from 8.71 per cent in 2014.

“Quite frankly, the investment story … is not as compelling as it has been in the recent past,” wrote Bill Ullman, Orchard’s chief commercial officer, in a blog post last month. He noted that the downward trend has continued into the first quarter of 2017.

Lending Club’s stock performance has been flat over most of the last year, though it has lost roughly 60 percent of its stock value.

The firm has also seen a massive change-over in its staffing and leadership since its more scandalous days a year ago.  CEO Scott Sanborn cut and rehired 179 jobs and brought on a new CFO, COO, general counsel and chief capital officer. The firm also expanded its offering into auto-loan refinancing and last quarter announced the release of its retail investor mobile application.

Will it be enough to get Lending Club back on course? The experts aren’t sure — and the marketplace remains uncertain. But given that many of those analysts were fairly sure Lending Club was heading toward going out of business, uncertainty about its future is actually a market improvement.