Entering text into the input field will update the search result below

LendingClub: Signs Of Desperation

Jun. 02, 2020 1:50 PM ETLendingClub Corporation (LC)16 Comments
Gary Alexander profile picture
Gary Alexander


  • LendingClub offered a brand-new promotion to retail investors promising a 50bps bonus for new deposits to LendingClub in Q2.
  • Investors, both retail and institutional, have backed off LendingClub due to the perceived risk of consumer debt amid a pandemic that has laid off millions of workers.
  • At LendingClub's ~$2.5 billion Q1 originations pace, a 50bps discount applied to all investors would result in ~$10 million of costs, or a roughly 8 point impact to Q2 margins.
  • LendingClub's liquidity looks thin as it is without additional costs.

Almost the entire market rallied in May, especially small cap stocks, with the Russell 2000 advancing 11% during the month. One major exception, however, is LendingClub (NYSE:LC). The once-innovative and market-leading fintech company, which focuses on providing unsecured consumer debt to borrowers, has been pressured into an existential crisis by the coronavirus. LendingClub's Q1 earnings, released in early May, showed a company that was preparing to see originations grind down to near-nothing, while the company tightened its belt and laid off one-third of its employees.

Shares are currently trading close to 52-week lows, and have lost more than 55% year to date.

ChartData by YCharts

This article will serve as an update to my prior article on LendingClub, with a specific update on LendingClub's crisis-management strategy: as a platform investor myself in LendingClub Notes, I was very recently alerted to an offer that LendingClub is proposing to retail investors in the months of June, July, and August. The company is planning to offer a 50bps bonus for all new deposits by investors, highlighting that the company is having issues funding new loans.

As a refresher, the core bearish thesis for LendingClub hinges on the following points:

  • Pandemic layoffs have made unsecured debt very risky, and LendingClub is facing drained demand from investors to fund its loans
  • In order to continue issuing loans and generating the origination fees that make up ~80% of its revenues, LendingClub has to take on more of its own loans onto its balance sheet, greatly increasing its credit risk

And a look as well at how originations have trended so far this year:

Figure 1. LendingClub originations trends by funding source

Source: LendingClub Q1 earnings deck

In short: the latest bonus offer from LendingClub is a major sign of desperation. Resist the temptation to catch

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.