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Global Yields Crash, GSKY for sale, LC earnings

By Vy Phan

August 11, 2019


This week we start with the compression in global bond yields and touch on developments from GreenSky (for sale!), Lending Club (new program), and Klarna (record financing).

Global rates compressed amidst flight to safety concerns. The main drivers are a slowdown in global growth and increased trade tensions and currency war risks.

Today, more than $15 Tn in sovereign debt trades at a negative yield. In Germany, for instance, bond investors have moved from charging 75 bps last year to a willingness to pay for the privilege of providing < 0% money for 10 years.

Source: PeerIQ

Here in the US, 10-year Treasury yields settled at 1.73%, touching a low of 1.6% for the week, and still above its record low of 1.3%. The yield on the 10-year inflation protected TIPS securities are at 6 bps implying that conventional Treasuries are yielding close to a zero real return after inflation.

LendingClub jumped 14% after beating earnings expectations. LendingClub delivered record loan originations (11% YOY) and net revenue (8% YOY). CEO Scott Sanborn also introduced LendingClub’s new “Select Plus Program” which allows sophisticated investors to underwrite and fund borrowers who fall outside of LendingClub’s criteria. The program enables LendingClub to grow originations in a capital light way while reducing overall customer acquisition costs. Quantitative fund manager Theorem is the initial participant in the program.

In financing news, EU fintech Klarna closed a round with a record $5.5B valuation. The Snoop Dogg-backed fintech raised $460M this past week and is looking to expand their U.S. presence creating direct competition with Affirm.

GreenSky shares sank ~37% after a strong earnings report was paired with news that the marketplace was exploring a potential sale or merger.

Shares sank ~30% despite a 20% rise in transaction volume over the prior year period (now $1.6 Bn) and revenue growth of 31% to $139 MM. GSKY’s market cap stands at ~$467 MM.

LendingClub (marketcap: $1.33 Bn) is the only other lender that has a substantial bank distribution network and features a marketplace as a core funding pillar. GSKY is strong in POS and other lending verticals where LC is strong in unsecured personal loans and direct response channels. Might there be a tie-up between the only two publicly traded lenders built with marketplace DNA?

The news will send a negative knock-on effect to dozens of startups that have launched in recent years billing themselves as the “GreenSky of [ insert niche vertical ]”.

Industry Update

Lighter Fare