Finance

Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

The red flags at LendingClub are piling up fast. 

On Tuesday, the most prominent peer-to-peer lender called off its annual shareholder meeting just as it was about to start, saying in a filing that it was "not yet in a position to provide its stockholders a complete report on the state of the company.”

Canceling an annual shareholder meeting is a huge deal. It raises all sorts of questions about LendingClub, which has been shaken by concerns about how it will secure funding for the loans it originates -- not to mention concerns about investigations by the Justice Department and Securities and Exchange Commission. Michael Tarkan of Compass Point summed up some of those questions in a note:

Could the company be in the final stages of negotiations for funding and the deal just wasn't completed in time for the meeting? How much funding would be potentially provided and would any agreement result in significant dilution for LC holders? Was there a funding deal in the works that fell apart at the last minute? Is LendingClub exploring strategic alternatives? Is LendingClub contemplating retaining more risk on balance sheet? Was the company prepared to preannounce lower origination volumes?

The canceled meeting wasn't all. It came after management abruptly called off an appearance at a financial conference on Monday. The marketplace lender also said it was raising rates in its standard loan program by a weighted average of 55 basis points and tightening credit standards, which doesn't bode well for the prospects of loan-origination growth, not only at LendingClub but the rest of the industry as well. To add insult to injury, fund manager Baillie Gifford & Co., which was its second-largest shareholder at the end of March, with more than 9 percent of the shares, disclosed it had dumped its entire stake. 

Rate Increase
LendingClub is raising its loan rates by a weighted average of 55 basis points
Source: Company filing

LendingClub's troubles reverberate beyond its boardroom. It is the company that sought to put the tech in fintech, promising to shake up dusty old banks by matching consumers seeking loans online with investors willing to put up the money. It went public with great fanfare in late 2014, joining the unicorn club, but the industry has started to move sideways, taking LendingClub with it.

LendingClub's crisis is now most critically one of leadership. Founder and CEO Renaud Laplanche resigned abruptly last month amid a scandal about the company’s disclosures and business practices, including changing dates on some loans to qualify them for purchase by investment bank Jefferies. The stock was no highflier before that, but the plunge since then may relegate the shares to the penny-stock category that could be hard to recover from. They are now down 60 percent this year.  (Laplanche also may not be going away quietly. Reuters reported that he has spoken to buyout firms and banks about the possibility of trying to take over the company.)

Peer Pressure
Shares of LendingClub, the peer-to-peer lending pioneer, are down 60 percent this year
Source: Bloomberg

Scott Sanborn, who had mostly worked in operations and marketing, was elevated to acting CEO. New Chairman Hans Morris told analysts on a conference call that the board had a lot of confidence in Sanborn and had not yet decided to undertake a CEO search.

That seems like a big mistake. No offense to Sanborn, but the task at hand seems outside his primary skill set and experience. His resume contains mostly jobs focused on marketing to consumers. Before coming to LendingClub as chief marketing officer in 2010, he previously held marketing jobs at eHealthinsurance, RedEnvelope and the Home Shopping Network, according to his LinkedIn profile.  

Marketing isn't LendingClub's chief problem right now. Instead, it needs a steady hand with experience dealing with capital markets, financial compliance, and -- for lack of a better phrase -- putting out fires. And that leader will have to rebuild. In addition to Laplanche's departure, Bloomberg has reported that three executives involved in loan sales -- Jeff Bogan, Adelina Grozdanova and Matt Wierman -- also left.   

It's hard to imagine confidence being restored to the firm until it's led by an executive who can turn things around and represents a break with the past. LendingClub's board needs to rethink that decision not to search for a new CEO. Otherwise a pioneer could end up as just a footnote in the fintech revolution.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net