Alternative Finances

Laplanche Eyes Lending Club Buy While Investors Flee And Annual Shareholder Meeting Is Postponed

Well, one can say this much for Lending Club: For whatever difficulties it seems to have keeping paperwork straight and investors on its platform at present, it sure knows how to keep things interesting in payments and commerce.

Going into the news today, the struggling online lending platform doesn’t bring just one story to the cycle. No, it’s going for the hat trick with three.

The first and biggest of those news pieces is that recently booted CEO Renaud Laplanche has apparently been talking to potential investors, like banks and private equity firms, on the QT about the possibility of financing a buyout of the online lender.

Yes, the same Renaud Laplanche who resigned after an internal probe turned up the fact that Lending Club had falsified the documentation on a package of loans worth $22 million. Adding further intrigue, the probe also turned up that Laplanche had failed to inform his board of large personal stakes he and Lending Club Chairman John Mack had in the firm Cirrix shortly before Lending Club acquired a 15 percent stake in the company.

The aftershocks were not pretty. Marketplace lending was already suffering from some difficulties with investor confidence, as rising loan losses and increasing interest rates started sowing seeds of concern that the business model and its heavy reliance on network effects were not well-suited to changing economic conditions. Share price had already started to suffer.

However, those concerns really started hockey-sticking after the results of the internal probe came to light, and the platform has seen 40 percent of its stock value evaporate in the last month.

And a cratering share price — though very bad news — is far from Lending Club’s only problem, as it is becoming increasingly clear that some of Lending Club’s biggest shareholders are not willing to try to wait this round of rough sledding out.

Which leads to the second piece of headline-making news today: Baillie Gifford & Co., an investment manager based in Edinburgh, has confirmed in a filing that it is no longer a Lending Club shareholder. And that is huge change. As of February of this year, Baillie Gifford owned about 9 percent of the company, with 34 million Lending Club shares. It was Lending Club’s second-largest shareholder.

Yikes.

James Anderson, Baillie Gifford’s head of global equities, said the firm sold specifically because of the events around Laplanche’s departure.

“We’d tried hard to be supportive, long-term shareholders, but we can’t continue to support a company after an executive (or former executive) is suspected of dishonesty,” Anderson said in a statement.

He also noted that Laplanche’s failure to disclose a personal stake in a fund that Lending Club later invested in “bothers us even more than the loan misdocumentation.”

Given all that, the third big Lending Club headline of the morning really is not all that surprising. Following the sale of its second-largest investor’s stake, Lending Club postponed its annual shareholder meeting as it was about to begin yesterday (June 7).

Lending Club noted in a regulatory filing that it was “not yet in a position to provide its stockholders a complete report on the state” of its business. The filing also confirmed that LC plans to cut back on its loans to riskier borrowers and to raise interest rates to make loans more attractive to investors.

The company is working with investment bank Jefferies LLC to help find investors for loan funding, as it seeks to replenish investments, Reuters reported in May.

So, what now?

The board meeting has been rescheduled for June 28, and between now and then, it remains to be seen what, if anything, Laplanche can do to get control back of the company that booted him.

Laplanche has declined to comment on his future plans. A representative for Lending Club also declined to comment.

But he could have an uphill battle securing funding, considering why he left, the effect his actions had on the business and the fact that the DOJ and New York Department of Financial Services are separately investigating his departure.

So, what happens next? We’re honestly not sure. But stay tuned, it should be well worth watching.

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