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Low returns on stocks and bonds is helping LendingClub - an online financial startup - attract...

Low returns on stocks and bonds is helping LendingClub - an online financial startup - attract investors who buy loans in the company's online marketplace with rates ranging from 5.4% to 25% (depending upon a borrower's credit score). The latest to step into social lending is Thomson Reuters (TRI) with a reported $25M investment.
Comments (8)
  • mikeg999
    , contributor
    Comments (69) | Send Message
     
    Great concept on paper. The actual results will be certain to disappoint investors. It is not a compelling investment to take equity risk for debt returns.

     

    Only winners here will be LC and the sales folks. You can do far better with less risk with a firm with a long track record-NLY.
    8 Sep 2011, 08:29 AM Reply Like
  • kmi
    , contributor
    Comments (4023) | Send Message
     
    Do you have experience with this Lending Club thing? I haven't seen bad press on it - yet.

     

    It's own advertising:
    www.lendingclub.com/pu...
    8 Sep 2011, 09:57 AM Reply Like
  • kmi
    , contributor
    Comments (4023) | Send Message
     
    FYI it looks capped at $35,000 to boot -
    8 Sep 2011, 10:00 AM Reply Like
  • mikeg999
    , contributor
    Comments (69) | Send Message
     
    A friend asked me to review the program and after reading the prospectus and 10-K the advised against.

     

    Among my concerns:

     

    Limited borrower verification including income.
    High effective costs to service and enforce.
    Management team biased to marketing/sales/promotion skill set. Headcount is weighted to marketing/sales/customer service.
    Unknown credit culture.
    Limited operating history raising doubts about future loan performance, delinquencies and losses. From 5/07 to 3/11, only 11% of the loans have been fully repaid.
    The recovery rate on charge offs was $56,000 or about 6%. All loans 120 days past due are charged off. Also, if there is ever a future recovery past the original note maturity date, the investor will NOT receive the monies-LC retains it.
    Review the risk listing-hard to find the rationale for accepting those risks.
    You are dependent on LC to manage your investment. LC is unprofitable.

     

    I stand by my conclusion.
    8 Sep 2011, 11:30 AM Reply Like
  • Trader 611
    , contributor
    Comments (59) | Send Message
     
    I have personally invested money in lending club. Seems legit to me and I looked into the loan performance. Don't take my word for it - go check out their website and talk to their people (I did). Invested chump change. So far, I'm earning north of 8% APR. It's fun and I'm helping my fellow American get out of debt. It's not always about the money. Have a nice day.
    8 Sep 2011, 02:57 PM Reply Like
  • mikeg999
    , contributor
    Comments (69) | Send Message
     
    Good luck. I wish them no harm just didn't fit my risk parameters.
    8 Sep 2011, 04:16 PM Reply Like
  • zmahlum
    , contributor
    Comments (7) | Send Message
     
    I've got a tiny portion of my investment portfolio in LC, about $5,000. Haven't been that crazy about the results. I'm only averaging around a 7% return and the investment isn't remotely liquid. I've had several defaults and I've ceased any additional investment unless there is a radical change.
    26 Mar 2012, 10:09 AM Reply Like
  • mikeg999
    , contributor
    Comments (69) | Send Message
     
    zmahlum,

     

    Not at all surprised by your report. Lending is one of the oldest businesses and certain risk will never be completely avoided. After the recent financial market meltdown, one needs a return far greater than 7% to compensate for limited track record, no liquidity or secondary market and questions about the sponsor's profitiabilty and ability to scale the platform.

     

    LC is a promoters dream-great sales pitch-helping the neglected consumer obtain needed loans a social platform and progressive use of IT platforms to scale the business. You know what they say? Too good to be true.
    30 Mar 2012, 12:28 PM Reply Like
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