LAFDI Market Report – ONDK leads further pounding

By Rupert Taylor on Friday 6 May 2016

Alternative Lending

The LAFDI took a pounding as global capital markets digested OnDeck Capital’s disastrous results. After the bad PR generated earlier in the year by Prosper’s very public falling out with Citigroup OnDeck’s poor results have added fuel to the fire.  Whilst supporters of the alternative finance space will see signs of ‘growing pains’, as the industry reluctantly recognizes the implications of the developing secondary market, cynics will see all of this as evidence of fundamental flaws in the new model. 

 

Weekly return

LAFDI

-6.25%

MSCI World

-2.05%

Top 5 performing Stocks in last week

1

PFSI US Equity

5.19%

2

MONI LN Equity

1.68%

3

BAS1V FH Equity

0.09%

4

VSL LN Equity

-0.21%

5

RDL LN Equity

-0.24%

Worst 5 performing Stocks in last week

1

ONDK US Equity

-42.21%

2

SGM US Equity

-15.94%

3

LC US Equity

-15.33%

4

SQ US Equity

-14.98%

5

NEWS US Equity

-13.02%

 

* Returns are calculated for the week to local market close on Thursday.

OnDeck's results themselves were nothing short of terrible.  Market expectations were for a small narrowing of the quarter’s net loss from 8c one year ago to 7c today.  In fact losses increased to 18c per share.  To make matters worse revenues undershot at $62.6million versus guidance in February of $66-69m.  Perhaps worse still were signs that OnDeck struggled to distribute much of their origination with just 26% of loans originated on the quarter sold, down from 40% in the previous quarter.  Even worse pricing on these loans slid such that gains on sale fell to 5.7%, from 9%, leaving the market to reappraise the possible volatility of this revenue stream. 

Taking a step back, and after stomaching a large helping of sobering hindsight, arguably none of this was surprising.  Fixed income markets were dislocated in Q1 by a wave of broad based capital markets volatility.  It was always likely that it consequently became harder to distribute the loans originated by this new and un-tested asset class.  When one combines this with other evidence of stresses developing elsewhere in the online lending secondary market – for example Proper’s travails with Citigroup – and OnDeck’s problems seem less surprising.  AltFi would observe that online lending businesses need scale and this scale relies on the development of a functioning secondary market to attract institutional capital with the promise of liquidity.  The lending platforms, as the originators of this new credit asset class, need to find a way to give the secondary market confidence in what they are buying.  Whilst ultimately there is no substitute for the passage of time the industry may need to think carefully about how it can create more consistent demand for these new loans.

Please note – The LAFDI is now available on Bloomberg.  Tickers:

LAFDITR <index> GO for the Total Return Index

LAFDIPR <index> GO for the Price Return Index

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