Ahead of today’s investor earnings call, leading marketplace lending platform Lending Club announced that it has accepted the resignation of Chairman and Chief Executive Renaud Laplanche. The resignation comes after an internal review of sales of $22m in near-prime loans to a single investor, which were “in contravention of the investor’s express instructions as to a non-credit and non-pricing element, in March and April 2016”. Former COO Scott Sanborn will accede to the role of acting CEO, and will assume managerial responsibilities for the company. Hans Morris – a director on Lending Club's board since 2013 – has been appointed to the newly created role of Executive Chairman.
The exact nature of Laplanche’s transgression in relation to the loan sales is not yet wholly clear, but Mr. Morris provided comment:
"A key principle of the Company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees. While the financial impact of this $22 million in loan sales was minor, a violation of the Company's business practices along with a lack of full disclosure during the review was unacceptable to the board. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues. We have every confidence that Scott and the management team are well positioned to lead Lending Club forward."
Laplanche oversaw the sale of $15m of near-prime loans in March and $7m in April – each to a single, accredited institutional investor. Lending Club's announcement states that “certain personnel” were aware that the sale did not meet the investor’s criteria. Lending Club repurchased these loans at par in April and has subsequently resold them at par to another investor. The review began with the discovery of “a change in the application dates” for $3m of the near-prime loans, which was “promptly remediated”.
Seemingly unrelated to the loan sales but nonetheless important context is the following statement from Lending Club:
“The review further discovered another matter unrelated to the sale of the loans, involving a failure to inform the board's Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund. This lack of disclosure had no impact on financial results for the first quarter.”
Laplanche has been CEO at Lending Club since founding the platform in 2006. He took the platform through from inception through to a landmark IPO in December 2014, when the company’s shares opened at $24.75. At Friday’s close, Lending Club was trading at a price of $7.09 a share. The fastFT reports that Lending Club shares dived more than 15% this morning in pre-market trading. During this morning's earnings call Lending Club announced that it would be withdrawing guidance for both the quarter and the year ahead. This is somewhat surprising, given that the events that precipitated Laplanche's departure were said to have had no direct financial impact on the company.
The news of Laplanche's resignation comes amidst significant headwinds for the US marketplace lending sector. OnDeck’s recently published quarterly results showed investor demand for the platform’s loan to be cooling. These results precipitated a 36% slide in the company’s share price, and a similarly steep decline in the share price of Lending Club. Last week saw Prosper announce cutbacks in response to a slow-down in origination volume. Citigroup recently announced that it would no longer purchase loans from the Prosper platform for the purpose of securitisation. The bank's decision came in the wake of a poorly received bond offering that was backed by Prosper loans.
Lending Club’s quarterly results, which were published this morning, reveal that the platform originated $2.75 billion in Q1 2016, up from $1.64bn across the same period last year. The platform has facilitated a little shy of $19bn in loans to date. Lending Club's GAAP net income was $4.1m in the first quarter of 2016, compared to a net loss of $6.4m during the same period last year.
Acting CEO Scott Sandborn commented:
"As our first quarter results demonstrate, Lending Club's business was strong despite the increasingly challenging investor environment. I will work closely with our valued borrowers, investors, and business partners to drive the continued success of Lending Club, and I am excited to be leading this exemplary team."