[isaacdstern]

http://www.wsj.com/articles/lendingc...o_hs&mg=id-wsj

[isaacdstern]

stock down 30% pre market

[AndyYSCISOdept]

That's called getting "CRUSHED"

[arezalmighty]

We are announcing today that I'm taking the reigns. Times a changing.

[FUNd]

We are announcing today that I'm taking the reigns. Times a changing.

And you are?

[TStein]

And you are?

A troll.

[isaacdstern]

30M shares already traded...down $600M in market cap

[hejfund]

Good riddance! That smug bastard used to testify in congress against MCA companies.

[mcaguru]

The ONLY winner from the public companies in our space is the company that owns the business backer stock up 100% from the lows.

https://www.google.com/finance?q=env...mOMsKYmAH074N4

[isaacdstern]

Lending club letter to investors:

http://www.streetinsider.com/dr/news.php?id=11640992

[AndyYSCISOdept]

Anyone have any ideas about how Lending club could've handled this differently?

[TStein]

Anyone have any ideas about how Lending club could've handled this differently?

Better compliance for all levels and less greed at the top.

I refer to an old DailyFunder article from a long time ago, " Journalists and insiders often refer to merchant cash advance and the rising alternative business lending industry as the wild west." (And this does refer to FinTech as a whole)

That is from 2014. Fast forward to 2016 and I'd say the law is slowly on its way.

[CreditGuy]

Anyone have any ideas about how Lending club could've handled this differently?

Be honest. It really isn't that hard.

[AndyYSCISOdept]

Be honest. It really isn't that hard.

Apparently so because this(dishonest business practices) seems to happen a lot.

[staten]

Apparently so because this(dishonest business practices) seems to happen a lot.

It's getting worse. They investing Cirrix Capital, a fund that buys their loans. The fact the Renaud and John Mack didn't dislose their individual ownership stakes in this fund to the board is a big deal.....

LC actually provided CREDIT PROTECTION to this fund! Brazen self dealing!

So hey investors, I'm lending club, please buy these notes without credit protection.

So hey fund that I own, I'll give you credit protection against our lousy underwriting to buy these loans so we can growth our origination......

Are you kidding me?

[CreditGuy]

Lending Club under DOJ investigation.

Not surprising.

LC to start holding loans on balance sheet

They don't have the capital or management acumen in risk/portfolio management to do this well or even effectively.

[FUNd]

LC to start holding loans on balance sheet

Can you break down the potential major industry impact or significance of this for us stupid people?

[CreditGuy]

I'll dial it way back for those even dumber than FUNd!

Historically, LC was simply a marketplace for connecting borrowers with investors that were willing to put capital at risk. In the middle, they graded the loans to provide investors some level of insight into the potential credit risk. At the time of LC's IPO credit losses were something very low like only 250bps, which is likely due to first payment defaults/fraud/etc. that based on the master purchase agreement governing their loan sales (which they violated resulting in this mess) made those assets ineligible and thus were (likely) written off. In short, they held no real credit risk in terms of both duration and extension. Further, they never had to manage cost of funds for any significant horizon since all assets were held for sale. Where this gets interesting is that now they have to manage all sorts of risks they have heretofore never had experience with, nor do they necessarily have the infrastructure to effectively report on their portfolio performance. If there is a mild upside, LC sold their loans servicing retained, so they do have a collections department.

These problems are unique and quite challenging in that LC has never had to manage an ALLL or otherwise forecast credit losses beyond investor grading/HFS. They have never had to manage durational and extension risk beyond accounting for it in loan grade. The technical infrastructure to do so and the human capital required to do so effectively aren't easily acquired, nor are they fully ramped at the time of acquisition should the timing issue regarding acquiring these personnel not be an issue. Their reporting shows they run a portfolio of roughly $8.5B in outstandings with 5% charge offs and another 3% past due. The ALLL for a balance sheet portfolio that size would need to be around $550M assuming 50% of past dues charge off. This assumes they were remarkable efficient at managing their ALLL and forecasting losses despite having never managed an ALL before and recently getting dinged for under forecasting losses and suffering a downgrade. Big assumptions all. Last, beyond the carrying costs of the loans in terms of costs of funds, they now also have to fund the human capital needed to run their ALLL and portfolio management functions, which are new and not insignificant expenses.

Where there is a lot of downside is that LC reported today they have $860M cash and cash equivalents on hand per the 10-Q. Seeing as they were facilitating >$10B a year into their now shriveled and decrepit marketplace with little to no investor confidence, that represents about a month of originations or the cash requirement to fund their conservatively estimated ALLL with about $290M left over. They indicated publicly that they have liquidity to remain solvent and funding for up to 12 months using cash and available credit with lenders as well as their capacity to constrain originations volume, but given the math this seems optimistic. The penultimate part is interesting in that their creditors are possibly going to exercise a MAC (material adverse change) clause with regards to their current outstandings, which would be an act of default and freeze additional advances against any revolvers or multiple advance closed end facilities. The last part is interesting in that they have to make significantly fewer loans to stay above water, which both hampers their ability to capture market share as well as generate revenues from interest income to fund operations. This calls into question their ability to do all sorts of things, like invest in infrastructure, hiring, etc.. Last, they are forced into a Sophie's Choice of sorts with respect to funding their ALLL or originating volume. Sure, it is possible that some investor is going to take a chunk of equity in exchange for keeping them afloat, but that is almost certainly dilutive and definitely a step in the wrong direction. Also, if they choose to play on the trapeeze without a net and not fully fund their ALLL, we'd likely see further action from DOJ/SEC/Your Mom.

I'll stop here for now, because I've already laid out enough of a picture for those that want to continue to draw conclusions to do so. LC is poised to be the Enron of FinTech. A victim of their leader's hubris, the greed of management to be successful, and a web of complicated and conflicting interests and vehicles that cast doubt on management's commitment to shareholders over themselves and their actual desire for transparency.

[FUNd]

OK, most well thought out and well written response, ever.

I am picking up that LC is/was the Napster of loans. Basically connecting money with people taking little to no legal responsibility for the outcome of the transaction, but simply providing the platform.

Now Napster has to actually purchase or license all the music from the record labels and sell it to the consumer themselves, and that takes moving parts, aka people, which cost a lot of money. Napster collapses under the weight of these new responsibilities, paving the way for Apple and its successors to start doing it the right way by licensing and selling songs for $0.99 each. Am I close?

[Sean Cash]

OK, most well thought out and well written response, ever.

I am picking up that LC is/was the Napster of loans. Basically connecting money with people taking little to no legal responsibility for the outcome of the transaction, but simply providing the platform.

Now Napster has to actually purchase or license all the music from the record labels and sell it to the consumer themselves, and that takes moving parts, aka people, which cost a lot of money. Napster collapses under the weight of these new responsibilities, paving the way for Apple and its successors to start doing it the right way by licensing and selling songs for $0.99 each. Am I close?

The problem is that Lending Club was supposed to be the Apple of the industry...

[Sean Cash]

Great response btw CreditGuy

[MCAVeteran]

Isnt LC model similiar to FC model? Connecting borrowers with accredited investors and carrying zero balance sheet? I think LC outcome has huge implications into marketplace lending and securitization of loans and investor confidence. On deck also jumped into the securitization market as well. Theres also the issue of the chartered bank relationship and class action brought in new york. The charter bank represents 12.5 percent of their loans and if it is declared those loans violated usury in certain states up until feb '16 when the charter bank amended its agrements, investors who bought those loans will have a reduced fee on those loans or forfeiture of those fees. Lots of moving parts here.

[FUNd]

I don't think LCs investors are what one would call accredited. Isn't this a crowd funding platform where Joe Six-Pack can jump in with as little as $500 and participate in a lending instrument based on credit grade and risk level as determined by the LC UW algorithm?

[KTK]

^ correct. And the number is $25 per transaction you can put into a loan believe it or not.

However they seem to have built their own accredited model. Last I knew, an accredited investor defined by SEC needs a $250k income or a 300k joint with spouse OR a $1M liquid net worth (aside from primary residence)I believe net worth can be alone or with a spouse. Lending club has a $70k minimum annual income requirement or a $70k net worth to be able to play. I think.

So unless there is a lower SEC bracket I'm unaware of for let's call it a "semi-accredited investor" it seems they made their own internal regulations to make sure they aren't taking somebody's last $200 pumping it into a loan like a slot machine for a return. Which is going to save themselves some headaches in this whole debacle I would think.

Curious as I know nothing about crowdfunding rules, if most of them have some sort of a minimum criteria. My understanding was always that anybody could kick into a project if they wanted to. Anyone know that market? I do know crowd funding platforms do need to be registered as a B/D of sorts, but can they take dollars from "anyone"?

[Jonathon]

I received this from LC this morning.


Hello Jonathon,

I'm Scott Sanborn, President and acting CEO of Lending Club. I've been on Lending Club's leadership team for the past six years as Chief Marketing Officer and Chief Operating Officer, and I wanted to take a moment to introduce myself and describe our current focus.

Individual investors like you are - and will always be - the foundation of our marketplace.

Given recent events, my immediate focus is on how Lending Club can best serve you - our investors. We've talked to hundreds of our investors - spanning individuals to financial advisors to banks to large institutions - over the past week about the strength of our business, our operations, our people, and our data integrity. Let me assure you that we are in a strong financial position with a substantial amount of cash and securities on our balance sheet - $868 million. We plan to be around for many years to come.

The performance of loans facilitated through the platform remains robust. We continue to service and process borrower payments just like we always have, and the interest and principal payments that borrowers make will continue to be passed on to you just as they were before.

We're extremely proud of the products we're providing to both borrowers and investors, and I look forward to sharing more with you in the coming months and years about our company and our results.

I'm not working alone. Our Executive Team has been working together for the past six years and has deep expertise in credit, operations, marketing, finance, human resources and technology. We're also supported by one of the strongest Board of Directors in the industry. It includes Hans Morris (former President of Visa and now our Executive Chairman), Larry Summers (former US Treasury Secretary), John Mack (former CEO of Morgan Stanley), Mary Meeker (a Partner at Kleiner Perkins Caufield & Byers) and other experienced executives.

I will continue to keep you informed as we move ahead. In the meantime, feel free to contact our team with questions and suggestions at (888) 596-3159 7am-5pm PT, Monday through Friday, or email us anytime at investing@lendingclub.com.

Thank you for investing with us. I look forward to having you as an investor for years to come.

Sincerely,
ScottSignature

Scott Sanborn
Lending Club President & Acting CEO