Fresh Lending Club fears prompt share price plunge

By Daniel Lanyon on Tuesday 18 October 2016

Alternative Lending

The giant of the marketplace and p2p industry has spooked the market following a series of announcements.  

Beleaguered US marketplace lending platform Lending Club saw one if its largest daily falls in its share price following on from a monthly trending downwards of nearly 25 per cent.

In Monday trading Lending Club’s share price fell 7.25 per cent before markets closed, as shown in the graph below.

Source: Google

Lending Club has had a tough year with investors losing confidence sharply amid allegations of impropriety surrounding its underwriting of loans being prepped for sale to an institutional investor in May. The quick result was the resignation of its co-founder and chief executive officer Renaud Laplanche and subsequently a major shakeup of its senior executive team.

This all seemed to have calmed investors in the firm, with a steady summer climb until mid-September. Since then, however, its share price has been hit hard with a 22.4 per cent fall including yesterday’s plunge.

The fresh concerns of investors centre on a consensus that a raising rate environment due to the Federal Reserve realising its goal for a December hike will prompt Lending Club to raise its rates for its loans in tandem.

In a letter to investors, chief investment officer Siddhartha Jajodia wrote that rate of interest was rising to to continue “providing solid risk adjusted returns to investors”.

He also warned investors in the same letter that Lending Club had been observing higher delinquencies in populations “characterised by high indebtedness, an increased propensity to accumulate debt, and lower credit scores”.

Lending Club’s interest rates will be increased by a weighted average of 26bps, with changes concentrated in grades F and G, and marginal movements in other grades. The platform already hiked rates by a weighted average of approximately 135bps from November 2015 to June 2016.

The firm will report its latest earnings 27 October for the third quarter ending September 2016.

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