As Lending Club Stumbles, Its Entire Industry Faces Skepticism


“Investors are shooting first and asking questions later,” said Christopher C. Brendler, a financial analyst at Stifel, the investment bank.

Wall Street’s waning demand for loans exposed the Achilles’ heel of marketplace lending. Unlike traditional banks that use their deposits to fund loans, the marketplace companies discovered how fleeting their funding sources can be.

Since the start of the year, Lending Club has raised interest rates on its loans three times to sweeten their appeal to investors.

As the pressure to sell loans mounted across the industry, the problems began to surface at Lending Club, according to two people briefed on the company’s internal investigation, who spoke on the condition of anonymity.

They said that in early April, a Lending Club employee discovered that the dates on about $3 million of loan applications appeared to have been altered in some way. The employee raised the issue with Mr. Laplanche, who alerted the company’s internal auditor.

That inquiry led to the discovery of more irregularities, these two people said. This time, it appeared that about $22 million in loans that had been sold to Jefferies did not meet the investment bank’s criteria.

While the discrepancy was fairly minor, they said the Lending Club board considered it a serious issue. The company bought back all of the loans.

“A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees,” Hans Morris, who on Monday was named Lending Club’s executive chairman, a newly created role, said in a statement.

The two people briefed on the internal investigation said it had turned up another issue. Mr. Laplanche had a stake in an investment fund that the company was also considering whether to invest in. But Mr. Laplanche had failed to disclose his personal investment to the board.

Mr. Laplanche did not respond to a request for comment.

Mr. Laplanche, in many ways, was considered the face of his industry. He is a French-born lawyer who spent the early part of his career at Cleary Gottlieb, a large corporate law firm.

He came up with the idea to start Lending Club in 2006 after seeing how little banks paid people to deposit their money and how much those same banks charged to lend. “We wanted to lower the spread,” he said in an interview last year.

Mr. Laplanche is also a world-class sailor who holds two speed records. He would frequently take his staff in San Francisco sailing.

Last Friday, the board informed Mr. Laplanche of its conclusions, making it clear that he had lost its confidence. Three senior managers involved in the loan sales have either resigned or were fired. The company’s president, Scott Sanborn, was named acting chief.

Before the recent turmoil, more traditional banks were putting faith in the industry’s underwriting models and low-cost lending system. The banks had been buying loans from the marketplace lenders and also forming partnerships.

JPMorgan Chase, for example, started a partnership with OnDeck to offer small-business loans. JPMorgan, the nation’s largest bank, figured that OnDeck could offer the loans more cheaply and quickly than if the bank processed them internally.

Some analysts predict that if the funding pressure continues, large banks could end up acquiring the marketplace lenders, or pieces of them.

“They have good technology and it could ultimately be adopted by the banks themselves,” said Todd H. Baker, founder of Broadmoor Consulting, which advises financial services companies.

Continue reading the main story



Source link

About admin

Check Also

Using Microsoft Apps on a Chromebook

Q. Can I use Microsoft Office on a Chromebook? A. Chromebooks run Google’s Chrome OS, ...

Leave a Reply

Your email address will not be published. Required fields are marked *