Yet more changes afoot for LendingClub — a peer-to-peer loans marketplace whose stock tanked May after its founder, CEO and chairman Renauld Laplanche resigned amid an accounting scandal. Ahead of an annual meeting being held later today, the company announced Scott Sanborn as its permanent CEO and Hans Morris as independent chairman of the board as it seeks to repair its image and business. But it also said that it would cut 179 jobs “in light of lower loan volumes in the second quarter and recognizing that fully restoring investor confidence may take time.”
Sanborn had been in the CEO role on an interim basis before today.
Currently, LendingClub’s stock is up nearly 6% in pre-market trading. But at $4.55, it is still hovering very close to its 52-week low.
The company also gave an update today about its Q2 business, and it’s not pretty. It expects loan originations in Q2 to be one-third lower compared to Q1 amid the fall in business after the scandal first came to light, or “since pausing in early May” in the company’s more euphemistic terms.
Among other charges, LendingClub said it also expects to report “investor incentives of roughly $9 million”; along with $15 million – $20 million of additional expenses “related to employee retention, employee severance, advisory relationships, board review, remediation and due diligence activities.”
Biggest of all will be a goodwill write-down of between $20 million and $40 million related to “slower growth expectations for Springstone,” the credit marketplace it acquired in 2014 for $140 million. All in all, these charges will total between $44 million and $69 million.
LendingClub was once the darling of the very crowded P2P lending space competing against the likes of Prosper, FundingCircle, Kabbage and many more with a model that disrupted the traditional banking world by connecting people looking to borrow money with those willing to lend it. Operating only in the U.S., LendingClub’s sweeteners were rates lower than institutional incumbents, and a process that appeared to work far more seamlessly and quickly. The company raised nearly $400 million when still in startup mode and then nearly $1 billion in its IPO at the end of 2014.
But it appears that what LendingClub was presenting to the world was indeed too good to be true: behind the scenes there were loan applications being altered, and the CEO had not disclosed his role in a fund that LendingClub was investing in essentially to provide loans on the platform.
These problems led to both the Justice Department and the SEC investigating the company. But putting to one side LendingClub’s own internal mess, there is the fact that the Consumer Financial Protection Bureau is now accepting complaints about sites like Lending Club, which could lead to further fines and lawsuits.
All of this has led to a big decline in LendingClub confidence the amount of loans being made through the platform, and that is what LendingClub is now trying to tackle head-on to stave off the freefall.
Sanborn has been with the company since 2010, most recently as president and COO before stepping up to the CEO role. “We have demonstrated the power of the Lending Club marketplace model to generate attractive, risk adjusted returns to investors,” he said in a statement. “We are working closely with investors to rebuild confidence and are encouraged to see them returning to the platform.”
As part of today’s news, LendingClub also said that it had concluded its own internal review of some of the problems, with the findings stretching back several years and pointing to wrong-doing early on. It has adjusted the valuation of six private funds managed by LC Advisors, and it has “made several changes to improve governance of the funds, including establishing a majority independent Governing Board.” It also found loans worth some $720,000 made in December 2009 to Laplanche and three members of his family, issued — according to an SEC filing issued today — “in order to help increase reported platform loan volume for December 2009.”
The company will be reconvening a shareholder meeting later today and we’ll update this post as and when we learn more.
Update, clarification: The fund with Laplanche’s involvement was not LC Advisors, but another fund called Cirrix Capital, which also purchased loans and interests in loans. More information in Lending Club’s 10-Q.