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LendingClub's (LC) Shares Tank 7.4% as Problems Continue
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Problems seem to continue for the peer-to-peer online lender, LendingClub Corporation (LC - Free Report) . When the company abruptly postponed its annual shareholder meeting on Tuesday, its shares experienced a free fall.
Another major reason for the bearish investor sentiments towards LendingClub was perhaps a filing by Baillie Gifford & Co., an Edinburgh-based investment manager. The filing stated that Baillie Gifford is no longer a shareholder of LendingClub whereas in Feb 2016, it had revealed a 9% stake in the company.
LendingClub tumbled 7.4% to close the day at $4.39 per share. Notably, the stock is down more than 60% year-to-date, with the decline being majorly attributed to the sudden resignation of the company’s founder Renaud Laplanche as the chairman and CEO in May.
In a regulatory filing, LendingClub said that it was “not yet in a position to provide its stockholders a complete report on the state” of its business. The company has rescheduled its annual shareholder meeting for Jun 28.
Background
LendingClub had been a darling of the investors since its IPO in Dec 2014. However, driven by the challenging operating environment, increasing competition and internal control issues, the stock has since fallen off the investors’ radar.
In May, Laplanche suddenly resigned amid an internal review that revealed a violation in the company’s business practices. The probe pertained to sales of $22 million in near-prime loans to a single investor. The company said it made the sale in a fashion that went against the investor’s instructions. Further, some debts were misdated and Laplanche failed to properly disclose an investment.
The resignation came after LendingClub’s board discovered that employees had forged data on some loans sold to an investment bank, Jefferies. In its quarterly filing, the company revealed that several large investors are reluctant to invest and have stopped their investments in loans in the wake of Laplanche's resignation.
Additionally, LendingClub stopped providing outlook to investors, when resignation of Laplanche was disclosed.
LendingClub’s troubles didn’t end here. These developments have put the company in a regulatory spotlight. The financial regulators have initiated a probe in to the company’s business practices.
Efforts to Regain Trust
LendingClub is trying hard to regain investors’ confidence. In a separate regulatory filing yesterday, the company revealed the updates to its standard program loans. The company is raising its interest rates and will be charging the borrowers 0.55% more on an average.
Further, the company is lowering the debt-to-income ratio (excluding mortgage and the requested loan amount). Now, loan applicants need to have debt-to-income ratio of 35% or less. Previously, the company provided loans to borrowers with debt-to-income ratio of up to 40%.
LendingClub stated that owing to these changes, loan volume is likely to fall 5%.
Road Ahead
While LendingClub is undertaking steps to bolster investor confidence, its former CEO Laplanche is talking with private equity firms about financing a deal to take the company private. These talks are at preliminary stages and can fall apart.
Driven by these concerns, other online lenders including On Deck Capital, Inc. and Square, Inc. (SQ - Free Report) have come under investors’ spotlight. Further, owing to tightening of credit markets, the online lenders’ profitability is getting adversely impacted.
Moreover, per Reuters report, The New York Department of Financial Services has sent a letter to 28 such companies seeking information about their business practices. Some of the companies are Prosper, Avant, Funding Circle and Upstart.
Therefore, it looks like the problems of LendingClub and other online lenders are far from over. Despite taking restructuring and streamlining measures, profitability of online lenders will continue to be adversely impacted in the near-term.
Currently, LendingClub carries a Zacks Rank #4 (Sell). A better-ranked firm in the same space is Euronet Worldwide, Inc. (EEFT - Free Report) with a Zacks Rank #2 (Buy).
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LendingClub's (LC) Shares Tank 7.4% as Problems Continue
Problems seem to continue for the peer-to-peer online lender, LendingClub Corporation (LC - Free Report) . When the company abruptly postponed its annual shareholder meeting on Tuesday, its shares experienced a free fall.
Another major reason for the bearish investor sentiments towards LendingClub was perhaps a filing by Baillie Gifford & Co., an Edinburgh-based investment manager. The filing stated that Baillie Gifford is no longer a shareholder of LendingClub whereas in Feb 2016, it had revealed a 9% stake in the company.
LendingClub tumbled 7.4% to close the day at $4.39 per share. Notably, the stock is down more than 60% year-to-date, with the decline being majorly attributed to the sudden resignation of the company’s founder Renaud Laplanche as the chairman and CEO in May.
In a regulatory filing, LendingClub said that it was “not yet in a position to provide its stockholders a complete report on the state” of its business. The company has rescheduled its annual shareholder meeting for Jun 28.
Background
LendingClub had been a darling of the investors since its IPO in Dec 2014. However, driven by the challenging operating environment, increasing competition and internal control issues, the stock has since fallen off the investors’ radar.
In May, Laplanche suddenly resigned amid an internal review that revealed a violation in the company’s business practices. The probe pertained to sales of $22 million in near-prime loans to a single investor. The company said it made the sale in a fashion that went against the investor’s instructions. Further, some debts were misdated and Laplanche failed to properly disclose an investment.
The resignation came after LendingClub’s board discovered that employees had forged data on some loans sold to an investment bank, Jefferies. In its quarterly filing, the company revealed that several large investors are reluctant to invest and have stopped their investments in loans in the wake of Laplanche's resignation.
Additionally, LendingClub stopped providing outlook to investors, when resignation of Laplanche was disclosed.
LendingClub’s troubles didn’t end here. These developments have put the company in a regulatory spotlight. The financial regulators have initiated a probe in to the company’s business practices.
Efforts to Regain Trust
LendingClub is trying hard to regain investors’ confidence. In a separate regulatory filing yesterday, the company revealed the updates to its standard program loans. The company is raising its interest rates and will be charging the borrowers 0.55% more on an average.
Further, the company is lowering the debt-to-income ratio (excluding mortgage and the requested loan amount). Now, loan applicants need to have debt-to-income ratio of 35% or less. Previously, the company provided loans to borrowers with debt-to-income ratio of up to 40%.
LendingClub stated that owing to these changes, loan volume is likely to fall 5%.
Road Ahead
While LendingClub is undertaking steps to bolster investor confidence, its former CEO Laplanche is talking with private equity firms about financing a deal to take the company private. These talks are at preliminary stages and can fall apart.
Driven by these concerns, other online lenders including On Deck Capital, Inc. and Square, Inc. (SQ - Free Report) have come under investors’ spotlight. Further, owing to tightening of credit markets, the online lenders’ profitability is getting adversely impacted.
Moreover, per Reuters report, The New York Department of Financial Services has sent a letter to 28 such companies seeking information about their business practices. Some of the companies are Prosper, Avant, Funding Circle and Upstart.
Therefore, it looks like the problems of LendingClub and other online lenders are far from over. Despite taking restructuring and streamlining measures, profitability of online lenders will continue to be adversely impacted in the near-term.
Currently, LendingClub carries a Zacks Rank #4 (Sell). A better-ranked firm in the same space is Euronet Worldwide, Inc. (EEFT - Free Report) with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>