Global Yields Crash, GSKY for sale, LC earnings
By Vy Phan
August 11, 2019
Greetings,
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
- Yield Curve Blares Loudest U.S. Recession Warning Since 2007 (Yahoo Finance, 8/5/2019) following President Trumps threat to increase tariffs, China allows Yuan to fall and trigger increased fears of recession.
- LendingClub: America Does Not Need Another Credit Card, Apple Card Spells Disaster for Consumers (Crowdfund Insider, 8/5/19) LendingClub fires shots across the bow at GS’s new Apple Card.
- LendingClub Launches Select Plus Platform (Yahoo Finance, 8/6/19) Platform to be used by “sophisticated investors” to approve borrows who fall out of current criteria.
- Klarna becomes most valuable EU fintech with $5.5bn valuation (Financial Times, 8/6/19) Snoop Dogg backed Swedish Fintech that offers “buy now pay later services” raises $460M.
- More people are getting into debt and unable to repay their loans (MarketWatch, 8/7/19) 5% increase in total bankruptcy filings since last month alone, roughly 1000 more filings than this point last year.
- GreenSky Is Latest Online Lender to Tumble (WSJ, 8/6/2019) Following OnDecks fall from glory last week, GreenSky follows with 37% drop after announcing possibility for sale or merger.
- Podcast 209: Al Goldstein of Avant and Amount (LendIt, 8/2/2019) On this week’s Lendit Podcast, The CEO and Chairman discusses how his businesses are serving both consumers and large banks through tech.
- Salesforce is acquiring ClickSoftware for $1.35B (Tech Crunch, 8/8/2019) Days after acquiring Tableau, Salesforce acquires the field software company, spending roughly $17B in a week.
- The Non-Weirdness of Negative Interest Rates (Bloomberg, 8/8/2019) European governments and banks are essentially charging customers to hold their money, and it makes sense.
Lighter Fare
- Claw machines are rigged — here's why it's so hard to grab that stuffed animal (Vox, 6/3/15) Don’t let your failure in the arcade stop you from pursuing your surgical dreams, the claw machine is rigged to change its grip speeds and fix profits.