LendingClub (LC) Increases 7% Despite Continued Troubles

On the day when the peer-to-peer online lender, LendingClub Corporation LC tried to alleviate investors’ concerns by making organizational changes, new revelations indicated more troubles down the road for the company.

Organizational Changes: CEO Appointment & Job Cuts

LendingClub announced the appointment of Scott Sanborn as its CEO and President and Hans Morris was named the Chairman. Earlier, Morris was assigned the role of Executive Chairman on a temporary basis following the sudden resignation of the company’s founder Renaud Laplanche as the chairman and CEO in May.

Further, as LendingClub expects loan originations in the second quarter 2016 to be just two thirds of the first quarter level, it is trimming its workforce by 12%.

With investors gradually returning to the LendingClub, the company intends to spend roughly $9 million as investor incentive in the second quarter. Moreover, incremental expenses of $15–$20 million will be incurred for employee retention and severance. Further, given the growth slowdown at its Springstone unit, the company will incur $20–$40 million goodwill write down.

Despite these streamlining plans, LendingClub doesn’t expect revenues and profits to improve before the first half of 2017.

Questionable Business Practices

Though LendingClub is striving hard to regain investors’ confidence, new information revealed that the company’s had launched an internal probe into irregularities related to loans earlier this year.

Now the latest revelation says that its former CEO Laplanche, along with his three family members took loans amounting to $772,800 from the company in Dec 2009 to inflate loan volume. This happened just before LendingClub had announced a capital rising from third parties. Loan volume remain the primary metric to the gauge the online lenders’ value. Notably, the loans were repaid in full.

LendingClub’s business practices related to the valuation of assets held by six private funds managed by the online lender’s LC Advisors LLC unit also came under a probe. Internal review revealed that valuation of these funds was not according to the “generally accepted accounting principles and impacted net asset values and monthly return figures for the LCA funds.”

Nonetheless, LendingClub has since hired an independent valuation firm to provide services to LC Advisors. Moreover, the company has made several changes to enhance “governance of the funds.”

A Bumpy Road Ahead

While organizational changes announced by LendingClub are a step in the right direction to regain investors’ confidence, the new revelation pertaining to questionable business practices extends its troubles.

Lending Club’s CEO and President Scott 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.”

Notably, investors cheered the company’s efforts to regain foothold, with LendingClub shares climbing 7.2%. However, the stock is down nearly 60% year-to-date.

Currently, LendingClub carries a Zacks Rank #4 (Sell). Some better-ranked finance stocks include Euronet Worldwide, Inc. EEFT, ORIX Corporation IX and First Horizon National Corporation FHN,each  holding a Zacks Rank #2 (Buy).

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