Weekly Industry Update: Lending Club and OnDeck Earnings Highlights

by | Feb 20, 2017 | Blog | 0 comments

Strong economic data this week across the January jobs reports, new housing starts, and retail sales has begun to catch up with improved investor and consumer sentiment.

FinTech financings and bank partnerships continue. The WSJ reported that SoFi is near completion of a $500 Mn financing led by Silver Lake. The deal would reportedly value the firm at over $4 Bn. Last week SoFi announced a partnership with Promontory Financial to enable community banks to purchase student loans. LendingClub also announced that in Q4 banks fund 31% of their loan volume, double their share in the prior quarter.

OnDeck and LendingClub released earnings this week and the Fed released their quarterly report on household credit. We call-out highlights from each below.

Lending Club Earnings Highlights

In a major shift, Lending Club unveiled in their earnings announcement its plans to sponsor its own securitization program with up to $100 Mn in quarterly issuance. Although the size of issuance is relatively small to Lending Club’s overall origination volume, the shift reflects Lending Club’s new management team’s willingness to take balance-sheet risk.

As we have noted in prior newsletters, a standardized repeat issuance program can enable originators to offer whole loan investors a path to liquidity and permanent financing – an attractive and differentiating attribute for any originator competing for investor capital.

Although LendingClub beat analyst expectations, LendingClub stock dropped ~8% on the day (up 6.8% YTD), primarily due to lower FY 2017 lower revenue guidance ($565 to $595 Mn) than analysts had expected ($597 Mn).

In the earnings call, LendingClub noted the return of key bank investors and the completion of remediation related to the May 9th disclosure. CEO Scott Sanborn emphasized the role of data and agility in maintaining a competitive advantage going forward.

OnDeck Earnings Highlights

OnDeck reported fourth quarter and full year 2016 financial results on Thursday. Despite record revenue and origination, investors reacted negatively due to a build-up of loan loss provisions (up 3x to $55Mn) and wider realized losses for the quarter (~$36.5 Mn in Q4 ’16 losses vs. a loss of $5.1 Mn in the prior year period).

OnDeck plans to save $20 Mn through headcount and other expense reduction measures. CEO, Noah Breslow, commented on several strategic initiatives such as international expansion and partnerships with WEX and Wave.

OnDeck also announced plans to scale the Chase program which is exceeding internal expectations. In this capital-light model, loans originated reside on JPM’s balance sheet reducing ONDK’s exposure to funding and credit risk.

Animal Spirits Alive in Fed Consumer Debt Report

The Consumer Confidence Index is at a 10+ year high, wage growth is strong (91-month high), and other economic data (housing starts, asset prices, home values) are near or have exceeded their peak levels.

Under the buoyant backdrop, the Fed’s Center for Microeconomic Data also released its latest Quarterly Report on Household Debt and Credit. The report revealed that total consumer debt outstanding increased $226 Bn to $12.6 Tn (1.8% growth) in Q4.

This increase was driven by increases across all debt products with significant growth in non-mortgage products (particularly, student, auto, and credit card). Mortgage origination volume, including refinancing activities, stands at $617 Bn – the highest level since the 2008 Great Recession. Consumer debt balances are at the highest level since 2007 Q3.

Conferences:

  • SFIG Vegas on February 26-March 1 in Las Vegas. We look forward to seeing many familiar faces!
    • CEO, Ram Ahluwalia will moderate a panel at 3:45PM on Monday, February 27 titled, “The Outlook for Securitization and Marketplace Lending?”.
  • LendIt on March 6-7 in New York. Save 15% on your ticket by using PeerIQ’s VIP code: PEERIQ17USA.
    • CEO, Ram Ahluwalia will deliver a keynote address, “Why Securitization and Online Lending are So Important for Each Other,” on March 6 at 10:20AM.
    • PeerIQ will also serve as a judge at the LendIt Awards Ceremony for  “Most Innovative Bank”, and “Top Consumer Lending Platform”. PeerIQ is nominated for the “Top Service Provider” Award.

PeerIQ in the News:

Industry Update:

  • Student-Loan Shop Maps Offering (AB Alert, 2/17/17) ReliaMax is planning its first securitization, expected to be completed during the third quarter of this year and total $100 Mn.
  • Delinquencies Dent Subprime Auto (AB Alert, 2/17/17) The percentage of delinquencies among subprime borrowers of securitized auto loans reached a new high during January.

Lighter Fare: