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Peer2Peer Finance News | July 27, 2017

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Lending Club still in the red as scandal takes its toll

Lending Club still in the red as scandal takes its toll
Staff
  • On November 7, 2016

LENDING Club posted a third-quarter loss of $36.5m (£29.4m), as the high-profile scandal that led to the departure of its founder continues to hammer the firm’s balance sheet.

The US peer-to-peer lender, which hit the headlines earlier this year due to a corporate governance debacle, said on Monday that the figure was an improvement on the $81.4m loss reported in the second quarter, but down compared to $1m profit in the same quarter last year.

Lending Club’s shares were trading around 17 per cent higher in New York at 14.50 GMT, as the losses were smaller than analysts predicted.

The company said it expects losses to widen further in the fourth quarter, in the range of $48m to $38m.

“The results for the third quarter of 2016 were negatively affected by approximately $11m in incentives paid to investors, and approximately $20m of unusual expenses from events related to our board review disclosures earlier this year, retention expenses and incremental legal, audit and other professional fees,” the company said in a statement.

Lending Club had been paying “incentives” to retain existing investors and lure new capital to the platform, to prevent mammoth outflows after the reputational damage done to the firm.

The firm launched an internal probe into its business practices earlier this year regarding loan irregularities that prompted the departure of its founder and chief executive Renaud Laplanche in May.

The US Justice Department subsequently launched its own investigation into Lending Club and several shareholders are reportedly suing the company, which has seen its share price plummet in recent months.

Read more: Lending Club’s former CEO investigated over share buyback

The scandal sent shockwaves throughout the P2P lending industry and dampened investor sentiment for the sector, particularly in the US.

Lending Club said loan originations in the third quarter were $1.97bn, up one per cent quarter-on-quarter but down 12 per cent compared to $2.24bn in the same quarter last year.

Operating revenue in the third quarter was $112.6m, up 10 per cent quarter-on-quarter and down two per cent compared to the same period last year.

The company, which boasts a retail investor base of 142,000, is making efforts to turn around its fortunes. It launched an auto refinance product last month, enabling the platform to enter a new and potentially lucrative $283bn market. It has also secured a commitment from the National Bank of Canada and its US subsidiary Credigy, to invest up to $1.3bn over the next 12 months.

“We entered September without the need for investor incentives and delivered solid sequential revenue growth and margin improvement,” said chief financial officer Tom Casey, who joined the company in September. “While expenses remain elevated, we are heading into the fourth quarter with improving fundamentals and increasing confidence, and a plan to put the company on a path to long term growth and margin expansion.”

Lending Club’s president and chief executive Scott Sanborn said: “I am very pleased with our performance in the third quarter. We actively reengaged with investors of all types to deliver on our plan and enable $2bn in loan originations.

“While we’ve made incredible progress, there is still work to be done. In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm. Today’s results, along with our new executive team, and the return of banks to our platform, give me confidence as we begin our planning for 2017.”