Blackstone Is Pulling the Plug on Online Consumer Loansby
Decision came before LendingClub scandal, according to sources
B2R Finance will continue funding home sales for landlords
Seven months after Blackstone Group LP said it planned to expand into online consumer lending, the firm is pulling back.
Several executives at Blackstone’s B2R Finance, including Chief Executive Officer Jason Hogg, have left as the company reorganized to focus more on its original mission, real estate financing, according to people familiar with the business. The moves were in the works before shares of online lender LendingClub Corp. fell more than 40 percent this week.
Blackstone is aborting its foray into an industry that was going to rewrite the rules of banking, yet is now facing scrutiny after a scandal at LendingClub. Prospects for marketplace lenders have darkened as investors reassess the quality of their loans, shares of publicly traded companies have fallen and a study released Tuesday by the U.S. Treasury Department said the lenders needed stricter oversight.
“The excitement that came with the rapid growth of marketplace lending is gone,” said Isaac Boltansky, an analyst in Washington with Compass Point Research & Trading. “What’s left is operational uncertainty, investor frustration and increased regulatory scrutiny.”
New York-based Blackstone, which manages more than $100 billion in real estate assets, started B2R in 2013 to finance investors in the growing market for single-family home rentals, where the private equity firm was the biggest landlord. B2R said in October it had bought the domain name Lending.com and was venturing into helping finance the purchase of consumer products from autos to air conditioners. Now B2R has replaced its leadership, let go a total of about 60 workers and shifted its focus back to financing homes, according to the people with knowledge of the matter who asked not to be named because the information is private.
Sara Sefcovic, a B2R spokeswoman, and Christine Anderson, a Blackstone spokeswoman, declined to comment.
Hogg, who led B2R’s push into online loans, left the firm last month, the people said. Many of B2R’s executives, who had worked with Hogg at American Express Co., recently left the company as well. Steve McClellan, president of Finance of America Holdings LLC, a Blackstone company involved in mortgage lending, now runs B2R, according to people familiar with the firm.
Blackstone didn’t think the timing was right to build a new operation with fresh product lines within B2R, said the people.
The fintech industry is on shaky ground right now. LendingClub announced Monday that its founder and CEO, Renaud Laplanche, left after an internal review revealed a lack of transparency in company operations. The stock has plunged since. Citigroup Inc. stopped buying debt from Prosper Marketplace Inc., one of the largest U.S. online lending platforms, which is reducing its workforce 28 percent. And losses are mounting at On Deck Capital Inc.
Blackstone, headed by Chairman and CEO Stephen Schwarzman, still makes loans to landlords through B2R and packages them into a new kind of debt securities -- home-rental bonds. Other firms have offered similar financing, including Colony Capital Inc., Cerberus Capital Management and BlackRock Inc., the world’s biggest money manager.
While the firms initially targeted landlords with multimillion-dollar loans, they soon expanded to offer financing for people owning as few as one rental home. That made the business more time- and labor-intensive. Cerberus has since decided to close its landlord-financing unit.
Blackstone is now looking to link B2R with its mortgage lender, which already has an established company, a national platform and offers several home-loan products, according to the people with knowledge of the matter.