Lending Club fund posts first ever monthly loss in August as insiders cash in company stock

By Daniel Lanyon on Thursday 29 September 2016

Alternative Lending

A portfolio of consumer loans originated and managed by beleaguered US marketplace lending platform Lending Club has seen its first ever negative month, according to reports. 

The Broad-Based Consumer Credit Fund ended September month down 0.49 percent on the past month, it’s first loss-making monthly period since its inception more than five years ago. This follows on from a period where investors’ redemptions peaked and it changed valuation metrics as well as incurred losses.

Scott Sanborn, the new chief executive officer of Lending Club, told investors in a letter dated last Friday this brought down the net return for the year to 1.24 per cent, Bloomberg reports

The fund had previously been clocking up a return of about 6 per cent per year.  Sanborn moved to reassure investors the fund as well those holding equity that his strategy to improve confidence in the online lender was on course and the negative return had already been correctly signalled. The $700m fund has previously seen its worst performance in June of this year when the portfolio broke even following a mark down of existing loans.

The numbers come in tandem with a series of sales of Lending Club's company stock by Lending Club insiders including Sameer Gulati - chief operations officer - who  sold 6,105 shares on September 26, he also sold 5,826 shares on August 30. Sandeep Bhandari - chief credit officer - sold 9,771 shares also on August 30. On August 29 Bradley Coleman - principle accounting officer - sold 1,943 shares. On August 17, 2016 Scott Sanborn - CEO - sold 38,381.

A spokeswoman for Lending Club says  the stock sales by insiders are intended to settle and cover taxes owed as restricted stock units vesting.

When restricted stock units vest on a monthly or quarterly basis, it is a taxable event and tax must be withheld, she says. 

The Broad-Based Consumer Credit Fund 's results are another blow to Lending Club which has seen a series of setbacks in 2016, most pertinently allegations of impropriety that led to its co-founder and now former CEO Renaud Laplanche resign under a cloud that quickly speared across the entire industry of online lenders.

An internal inquiry had found Renaud Laplanche had doctored the date of origination of some loans that were due to be repackaged and sold on to an investment bank. Also, the firm found that Laplanche owned units in a fund that was buying Lending Club’s loans but this had not been flagged to Lending Club’s internal compliance team.

In the past few week’s Lending Club’s stock price has fallen by nearly five per cent.

Performance of share price over 1 month

Source: Google

Lending Club reported a loss of $81.4m, or 21 cents per share, for the second quarter of 2016 compared to a loss of $4.1m, or 1 cent per share, a year ago. In this period Lending Club saw its origination volume decline by nearly 30 per cent compared to Q1 of 2016 although it was still marginally better than the second quarter of 2015. 

Loan originations in the second quarter of 2016 were $1.96bn, compared to $1.91bn in the same period last year, an increase of 2 per cent year-over-year. The Lending Club platform has now facilitated loans totalling nearly $21bn since inception.

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