jo
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Post by jo on May 9, 2016 12:05:55 GMT
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Post by zzr600 on May 9, 2016 13:00:58 GMT
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Post by p2plender on May 9, 2016 13:51:03 GMT
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Post by Financial Thing on May 9, 2016 18:10:16 GMT
This is bad news for the whole p2p lending industry. If LC fails then confidence in p2p will plummet.
Lending Club is a great example why investing in unsecured p2p loans is a bad idea.
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Post by drstarter33 on May 10, 2016 0:34:58 GMT
Hi folks, LendingClub has come crashing down, with some worrying news regarding the handling of loans by their management system. This is making me nervous about UK P2P. Any thoughts?
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Post by westonkevRS on May 10, 2016 5:54:48 GMT
The key difference between the UK and US "P2P" platforms is the source of funds.
The UK has traditionally been "P" and therefore I think more robust and sustainable. Although with the introduction of institutional money this has caused a divergence in strategy that is well documented on the AltFi.com web site. RateSetter remains true to the majority "P" model.
The US from the offset was designed for institutional funding, it was never P2P and hence the phrase "market place platforms". Institutional money is always going to be more volatile, although when your in fashion and providing the right level of returns it can allow exponential growth, with the reverse also true.
Kevin
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Post by dualinvestor on May 10, 2016 6:34:19 GMT
Hi folks, LendingClub has come crashing down, with some worrying news regarding the handling of loans by their management system. This is making me nervous about UK P2P. Any thoughts? "Crashing down" might be a bit premature could happen soon especially with a general downturn in the US economy but but it is still around for now. Let's hope that the underwriting on UK retail platforms is more robust than their's as alleged in the article
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Post by wiseclerk on May 10, 2016 7:47:55 GMT
The issue is less the business figures but rather three major management faults/ misconducts as I read it:
- selling 22M US$ in loans to an institutional investor (Jefferies Group) knowing they don't match the investment criteria of this investor
- altering data (dates) for loans
- Undisclosed conflict of interest. CEO Laplanche wanted LC to invest into a fund he was involved with
Any of these type of occurences would have send any stock plummeting regardless of business model, I think. Add to that the market circumstances Kevin mentioned above.
Also there is the trust issue. Have all things that went wrong been discovered or could there be more?
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dermot
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Post by dermot on May 10, 2016 8:50:16 GMT
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james
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Post by james on May 10, 2016 9:23:44 GMT
Given that Lending Club just lost their CEO due to what were fundamentally conflict of interest issues it'll be interesting to see what Cyrille Sallé de Chou does in that area at RateSetter. Will be interesting to see whether he finds anything he's uncomfortable with, in the event that it becomes public, which it may well not - probably wil not, in fact.
I assume that Lending Club's founder and CEO was given the option to resign or be fired.
This combination from the crowdfundinsider story is particularly interesting:
"The financial impact of this reporting is that the Company was unable to recognize approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans. ... The review was said to began with the discovery of a change in the application dates for $3.0 million of the loans described above, which was promptly remediated"
Lending Club is a listed company and it appears that certain profits may have been mis-stated to markets by moving them to an earlier reporting quarter than the one they belonged in. I don't know whether the CEO had a bonus structure or share ownership that would have benefited as a result. I think we may see more on this.
As is this:
"Lending Club stated that certain personnel apparently were aware that the sale did not meet the investor’s criteria"
Which is perhaps not surprising given the apparent involvement of the CEO and founder but is not a good indication of the culture within the company at the time. Presumably there are now more or at least more clear reporting channels available, including directly to a board level ethics committee for use as seems appropriate and perhaps a confidential reporting phone number operated by a third party. Putting in place ways to report issues of conduct of a CEO can be an interesting challenge for both mechanism and employee confidence to use the mechanism.
Some years back I used to mention as interesting a particular fund. One of the things that caused me to stop mentioning it was when a senior person in the company was said to be interested in using fund money to invest in a project in Africa based on his religious faith. That struck me as a clear conflict of interest and planned misuse of investor's money. Last I heard the Bristol fish and chip shop business he started after leaving that business involuntarily had failed. It turned out that the fund had been misrepresenting both how money was being invested and the values of the investments, which produced a nice bond-like return with minimal volatility, just as P2P typically does today. I don't think any P2P firm mentioned in this post is doing something like that, of course, it's just part of why I pay particular attention to anything that might involve actual or potential conflicts of interest.
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pikestaff
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Post by pikestaff on May 10, 2016 14:23:46 GMT
..." The financial impact of this reporting is that the Company was unable to recognize approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans. ..."... [emphasis added] Therein lies another big difference between the US and the rest of the world. Historically, US accounting standards made it too easy to recognise gains on loan sales. As a result, the US developed an aggressive originate-and-distribute model whereby originators booked their profits on loan sales and had to keep making those sales to make the numbers - with all the attendant pressures to mis-sell, cut corners, basically tell lies. A US banker once described it to me as like "being on heroin". The problems which led to the crash were largely down to this flaw in the system. The UK, and to a large extent the rest of the world, did not follow this path. Their superior accounting standards made it much harder to recognise instant profits, so securitisation was used as it should be used (as a means of funding) and not as a way of keeping the profits coming. I think Lending Club's problems are pretty specific to the US system and unlikely to recur here.
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adrianc
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Post by adrianc on May 10, 2016 14:33:35 GMT
As a total non-expert, it's interesting to see that the more-expert consensus is that my gut-feel - that this is really an LC internal issue - wasn't far off. But, of course, that's not where the real threat comes from. The real threat comes from giving any kind of support to views such as the first line of one of those zerohedge articles. www.zerohedge.com/news/2016-02-06/p2p-cracks-start-show-lendingclub-write-offs-double-forecasts...which the author then goes on to describe as a... Somebody has an axe to grind, I think... |
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Steerpike
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Post by Steerpike on May 10, 2016 14:46:48 GMT
As a total non-expert, it's interesting to see that the more-expert consensus is that my gut-feel - that this is really an LC internal issue - wasn't far off. But, of course, that's not where the real threat comes from. The real threat comes from giving any kind of support to views such as the first line of one of those zerohedge articles. www.zerohedge.com/news/2016-02-06/p2p-cracks-start-show-lendingclub-write-offs-double-forecasts...which the author then goes on to describe as a... Somebody has an axe to grind, I think... Pretty convincing argument for that sector of the P2P marketplace, max out credit cards, refinance with p2p loans, max out credit cards again, splat.
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Post by Deleted on May 10, 2016 17:16:46 GMT
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Post by Financial Thing on May 11, 2016 12:45:32 GMT
Investment banks and institutions are the death touch to most things good in the finance world. Unfortunately businesses gobble up offers of institution money due to the desire for rapid growth and expansion (and greed). Hopefully there are a few smaller p2p companies that don't desire to become a behemoth operation ( MoneyThing) and keep institutional money out and operations manageable.
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