Lending Cub appoints Scott Sanborn as CEO and president and announces 179 job cuts due to slower loan volume ahead of its Annual Stockholder Meeting later today.
Lending Club’s rescheduled stockholder meeting is set for 11am Pacific Time today (7pm GMT). The company has issued a series of announcements ahead of the meeting, headlined by interim CEO Scott Sanborn officially acceding to the role of CEO and President. Hans Morris has been appointed as independent Chairman of the Board.
Lending Club’s Q2 origination volume is forecast to be roughly a third lower than in the first quarter of the year when it lent $2.8bn which would suggest a figure around $1.85bn. Former CEO Renaud Laplanche was dismissed by the board in early May. While Lending Club asserts that investors “continue to return” to the platform since many of them paused activities in early May, the company appears to have paid a fair price to achieve that.
The company expects to report investor incentives of around $9m, $15-20m in expenses spread across employee retention, employee severance, advisory relationships, board review, remediation and due diligence activities. Lending Club also expects to report a goodwill write-down of between $20m and $40m related to slower growth expectations for Springstone, which the company acquired in April 2014. Lending Club has provided several investor incentives to both retail and institutional investors over the past several weeks, in an attempt to “reignite” the platform.
The company expects to cut 179 jobs “in light of lower loan volumes in the second quarter”, whilst acknowledging that “fully restoring” investor confidence may take some time. Mr. Sanborn said: "We have demonstrated the power of the Lending Club marketplace model to generate attractive, risk adjusted returns to investors. We are working closely with investors to rebuild confidence and are encouraged to see them returning to the platform."
Lending Club was hit with a freeze in institutional investor demand in the immediate aftermath of Laplanche’s resignation. Both Goldman and Citi pulled back from a planned securitisation of the platform’s loans, and Lending Club announced in a 10-K filing that it was considering funding loans on balance sheet.
The company’s internal review, began in the wake of Laplanche’s departure, turned up two items of note. The first related to “adjustments to the valuation of assets held by six private funds managed by LC Advisors ("LCA") that were not consistent with generally accepted accounting principles and impacted net asset values and monthly return figures for the LCA funds”.
Lending Club appointed an independent valuation firm to provide valuation services to the funds, and changes have been made to their governance structures. The second item pertained to loans from December 2009 that were made to Laplanche and three of his family members.
Lending Club has enacted a comprehensive review of its controls, compliance and governance over the past seven weeks. The context is that Laplanche’s dismissal revolved around the mis-selling of a batch of loans to an institutional investor. The company has now implemented KPMG’s best practice recommendations., which include increasing testing of data changes, increasing compliance and oversight resources, a new code of conduct and ethics, and so on.
Lending Club’s board has also established new policies which prohibit the pledging of Lending Club shares and prohibiting the company from investing in “ecosystem partners” that invest in Lending Club loans. This could include both institutional investors and specialist access platforms, such as Orchard and Lending Robot, which funnel cash into the platform.