More Borrowers Default at LendingClub Corp (NYSE:LC): Stock Sold Heavily

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LendingClub Corp (NYSE:LC) has had to contend with poorer borrower quality and rising default in online lending business; it has been forced to increase interest rates and tighten lending criteria, according to Reuters.

The stock fell 7.25% to close Monday at $4.99 after trading 18.19 million shares, more than double its average volume of 7.90 million shares.

Investors worry that the tighter norms and harder rates will curb delinquencies and improve margins, but on the flip side, the moves will crimp loan volume and ultimately reduce profits. It’s a difficult trade off, but the peer-to-peer lender likely has no choice.

Lending Club is the world’s largest online marketplace connecting borrowers and investors.

LendingClub Corp (NYSE:LC) writes to investors regarding rising delinquencies

“We have continued to observe higher delinquencies in populations characterized by high indebtedness, an increased propensity to accumulate debt, and lower credit scores,” wrote Chief Investment Officer Siddhartha Jajodia. “Although the trend can now be observed across grades, it is less notable in lower risk grades and more notable in higher risk grades, particularly grades E, F and G, which account for approximately 12% of platform volume.”

LendingClub Corp (NYSE:LC) writes to investors regarding new lending norms

The company revealed in its letter that with effect from October 12 it had tightened its thresholds on borrower leverage.

The lender’s system will flag and deny loans to prospective borrowers that are ‘high risk’ due to their existing high revolving debt, multiple new installment loans and risk scores.

However, the company clarified that the tightened norms will likely affect only 1% of borrowers.

The company has also beefed up its collection and recovery infrastructure.

LendingClub Corp (NYSE:LC) jacks up interest rates, reassures loan buyers

Effective October 14, 2016, interest rates will be increased by a weighted average of 26 bps.

Despite the new measures, the company hastened to assure its loan investors that they could expect net returns across the loan grades in the range of 4% to 8% going forward.

“Lending Club continues to offer a unique asset that provides compelling monthly income and solid net returns, especially in today’s low yield environment,” Jajodia said.

Technically, shares have fallen out of a rising channel in place since May 2016, and broken down past the 20 and 50 day averages.

 

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4 Comments

  1. LC shoots itself in the foot. If their underwriting is as bad as their borrower follow up then it’s a bad investment. For example: I had to keep calling them up to nudge them into the next step in the process. It’s like the employees are overwhelmed, under experienced or they just don’t give a damn.

    If middle management could figure out where the problem is, their performance would improve as a result. Investors would have more confidence and stock price would improve. Right now LC seems to be reacting to events instead of managing the company.

    Signed,

    Never missed a payment.

    • Peter perfect loser on

      I invested 4 years ago playing safe mostly a b and c loans. I was told my default rate would be in 5% to 7% range. Well, I’m at 10 and going higher every month. Looks like when I’m done with my ” six year experiment ” I’ll have a 12 to 15% default. Not happy I’ll be just above water AFTER SIX YEARS

  2. Calling out their poor business model on

    I borrowed from lending club, never missed a payment and paid off my loan 1 year sooner than expected. My credit score actually increased. I tried to apply for a new loan with them and was told I did not meet their standards. Strange I thought. I took my business elsewhere. If this is how they are trying to improve their numbers, they will be out of buisness very soon.

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