- Company has been boosting rates for new loans in recent months
- Rates on new loans climbing about 23 basis points, firm says
LendingClub Corp., a pioneer of online marketplace lending, said it raised rates for borrowers again to reflect a gloomier economic outlook and worse-than-expected performance for some of its riskiest loans.
The firm boosted interest rates on new loans by a weighted average of 23 basis points, mainly for lower credit grades, according to a filing on Wednesday. A basis point is one-hundredth of 1 percent.
“The new loss forecasts and interest-rate revisions released today incorporate both the impact of under-performing pockets and our prudent stance on the economic outlook,” the company said in the filing.
The deterioration in loan performance happened at a time when there haven’t been “broad-based signs of economic stress,” analysts at Compass Point Research & Trading said Thursday in a note to clients. The loan performance of LendingClub’s riskiest borrowers weren’t discussed in the filing and may be more pronounced, they added.
U.S. unemployment insurance claims dropped to the lowest level since 1973, the Labor Department reported Thursday. Steve Swasey, a spokesman for LendingClub, declined to comment.
LendingClub fell 54 cents to $7.74 in New York on Thursday, extending its loss for the year to 30 percent.
LendingClub, which matches borrowers with investors willing to finance their loans over the Internet, already raised rates for weaker borrowers in recent months -- once after the Federal Reserve’s move in December to boost interest rates, and then in January “to provide more loss coverage to investors in the event of a possible slowdown in the economy,” according to a filing.
The latest changes mean borrowers assigned credit strengths of E, for example, will have to pay a roughly 22.6 percent interest rate for a three-year loan -- or 3.64 percentage points more on average than they would have in November. Net losses for that class of borrowers rose a similar amount in that time frame to 14.1 percent. LendingClub makes loans to two weaker groups of borrowers beneath the E class.
The highest three grades of loans continue to perform within expectations, it said. But in lower grades, there were “pockets” that underperformed, and the company stopped lending to those borrowers earlier this year, it said. They represented almost 5 percent of loan volume.
Raising rates to adjust for weaker loan performance may help maintain the higher yields that investors have come to expect from investing in the debt, analysts have said.