LendingClub Rises on Signs of Rebound Even as Scandal Widens

  • Stone Ridge said to be buying $1 billion of company’s loans
  • Firm says ex-CEO took out loans to make volume appear larger

LendingClub Corp. climbed in New York trading on signs that debt investors are returning to its consumer-lending platform after the surprise resignation of founder Renaud Laplanche last month punished the stock.

Stone Ridge Asset Management plans to buy about $1 billion of LendingClub loans this year, according to a person with knowledge of the matter. Many more investors are finishing due-diligence checks after the leadership shakeup, saying they also will purchase more, though maybe at muted levels initially, LendingClub Chief Executive Officer Scott Sanborn said.

“The asset that we generate provides very attractive risk-adjusted returns and that hasn’t changed,” he told shareholders at an annual meeting on Tuesday. “Different investors are coming back at different rates."

After canceling and delaying earlier briefings, LendingClub fielded shareholder questions and published a broad update on the state of its business, including changes to leadership and strategy. That helped ease investor concerns, even as it disclosed two new findings from internal reviews tied to Laplanche’s exit. The stock rose 7.2 percent to $4.61 on Tuesday.

Sanborn, who had served as acting CEO since early May, took the post permanently Tuesday, LendingClub said. While second-quarter loan originations will be about a third lower than in the previous three months, debt investors who stopped purchases are returning, it said. Meantime, the company plans to dismiss 179 employees, or about 12 percent of its workforce, to cope with the decline.

The company said it plans to spend about $9 million on incentives to woo loan buyers, and as much as $20 million on costs including employee retention and severance. It also will probably book a charge of as much as $40 million because of slowing growth at its Springstone unit.

Tuesday’s update “helps to create a baseline,” BTIG analysts led by Mark Palmer wrote in a note to clients. It puts “the company’s current state of affairs into perspective.”

Review Findings

Shareholders at the half-hour meeting didn’t ask questions about additional internal-review findings disclosed earlier Tuesday. In December 2009, in order to make LendingClub’s volume appear larger, Laplanche and three family members took out 32 loans, the company said in a regulatory filing. The loans, which amounted to $722,800 in originations and $25,000 in revenue, were repaid in full, according to the filing.

A spokesman for Laplanche, 45, declined to comment.

LendingClub also said valuations of six funds managed by a subsidiary, LC Advisors, weren’t consistent with generally accepted accounting principles. Reimbursing affected investors will cost about $800,000, it said.

LC Advisors, which buys LendingClub loans, has seen the performance of its Broad-Based Consumer Credit Fund slip in recent months, according to a letter to investors. The unit recently decided to restrict redemptions after receiving requests that amounted to $442 million, or more than half of its assets, according to person familiar with the matter who asked not to be named because the information is private. The Wall Street Journal reported the move earlier Tuesday.

Still, other investors are plowing in. Stone Ridge, a money manager run by former Magnetar Capital executive Ross Stevens, has already started amassing the roughly $1 billion of loans it plans to acquire from LendingClub in 2016, the person familiar with the situation said, asking not to be identified because the buyer’s involvement isn’t public.

During the shareholder meeting, Sanborn referred to an asset manager planning to buy $1 billion of debts without identifying the purchaser. LendingClub and Stone Ridge declined to comment.

New Policies

Increased confidence among loan buyers may help Sanborn reverse a 58 percent stock slide this year. LendingClub was a market darling just 18 months ago, soaring after its initial public offering in December 2014 to a $10 billion valuation. The price soon began sliding amid mounting competition, the specter of more regulation and concern the company might not find enough investors to fuel growth.

On May 9, LendingClub stunned shareholders by announcing Laplanche, who was both CEO and chairman, had resigned after internal reviews. The board cited two incidents: Staff had altered application dates on $3 million of loans before their sale, and Laplanche failed to disclose his interests in a fund that LendingClub was considering investing in.

The firm said Tuesday that it’s changing policies to prohibit such investments, and that it’s “substantially” done with its internal reviews. It still faces external scrutiny. LendingClub said May 16 it received a grand jury subpoena from the U.S. Justice Department.

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