Lending Club (NYSE: LC) recently announced that its chairman and chief executive, Renaud Laplanche, resigned after an in-house review revealed violation of the organization’s business practices. The company indicated that the violation related to the sale of $22 million in near-prime loans to one individual investor. Lending Club did not comment on how the sale deviated from the client’s order, although they stressed that pricing and credit quality was not at issues.
In the announcement, the company stated that the financial impact of the sale was minor; however, the violation of stated practices, along with a lack of full disclosure during the review, prompted swift remedial actions in response.
In the aftermath of these revelations, two Wall Street investment banks halted purchases of the company’s loans. The decision by both Jefferies LLC and Goldman Sachs may cause delay or cancel upcoming securitization deals for Lending Club, which quickly rose to become one of the largest, most successful online lenders.
(Lending Club)
Lending Club directly connects borrowers to willing lenders across an electronic platform. The company promoted itself by saying it was turning “the banking system into a frictionless, transparent and highly efficient online marketplace, helping people achieve their financial goals every day.” Borrowers could get access to quick, competitively priced consumer installment loans, and lenders could realize higher returns than those paid by traditional banks and other financial institutions.
More Questions Arise Regarding Loan Securitization
The questions surrounding the event at Lending Club could impact the demand for securitized loans from other online lenders. This could compel the investment banks that structure those types of deals to delay future issues.
Although Lending Club does not rely upon the securitization of its loans for revenue, that channel for moving the company’s consumer loans had shown promise-particularly to complement a difficult funding environment.
