LendingClub loan buyers retreat after shake-up

LendingClub loan buyers retreat after shake-up

LendingClub loan buyers retreat after shake-up LendingClub Corp., which plunged 51 per cent last week after the surprise departure of its leader and disclosure of faulty internal controls, said the scandal is prompting investors to suspend debt purchases and spurring government probes.

Investors who “contributed a significant amount of funding” for loans have paused purchases to examine their performance “or are otherwise reluctant to invest,” the San Francisco-based company said Monday in a regulatory filing. The retreat is hurting the company’s ability to field new loan applications, it said.

Meantime, the Justice Department sent a grand jury subpoena seeking information, and the Securities and Exchange Commission is examining what happened, LendingClub wrote, noting it plans to cooperate. “No assurance can be given as to the timing or outcome of these matters.”

LendingClub stunned shareholders May 9 by announcing that founder Renaud Laplanche, who was chairman and chief executive officer, had resigned after internal reviews. The board cited two incidents: The firm’s staff altered application dates on $3 million of loans before their sale, and Laplanche failed to disclose his interests in a fund that LendingClub was considering investing in.

The company’s stock slid 7.9 per cent to $3.63 with shares having tumbled 64 per cent this year through the close of regular trading.

LendingClub, founded in 2006, originally used its online platform to match borrowers with individuals who wanted to fund them. In recent years, it has leaned more on money managers, hedge funds, banks and other Wall Street firms to sell the debts. Those buyers’ deep pockets are crucial to maintaining the tech-driven industry’s meteoric growth.

In interviews last week, people in the business of buying debts from LendingClub’s platform said concerns over its stumbles and disclosures were prompting them to consider scaling back or delaying purchases. BancAlliance, a network of community banks that partners with the venture, said Thursday it may suspend purchases at month’s end, when it typically decides how much debt to buy.

“It is too early to determine whether this trend will continue or what impact it may have on our business, results of operations, financial condition or our stockholders,” LendingClub said Monday. “We are actively exploring ways to restore investor confidence in our platform and obtain additional investment capital for the platform loans.”

Potential strategies include “equity or debt transactions, alternative fee arrangements or other inducements including equity,” it said. Such moves could be “costly or dilutive” to shareholders, the company said.

LendingClub hired an adviser to look back through its loans. A review of debt sold in the two years through March 31 found that 99.99 per cent showed no unexpected changes, aside from the $3 million of loans at issue, the company said.

The scandal hurt LendingClub’s ability to hold onto some of its key personnel. To retain managers and attract new ones, the company said it will need to boost pay packages.

Details of some of those arrangements were disclosed Monday: Acting CEO Scott Sanborn received a grant of restricted stock valued at $5 million and his salary was increased to $500,000. Chief Financial Officer Carrie Dolan received $3.5 million of restricted stock units and her salary was increased to $400,000. Both executives also received $500,000 cash awards that will pay out in a year.

Bloomberg News