As has been widely reported, the online lender has been buffeted by reports that improper lending practices were in place, with document falsification as well. In the wake of those revelations, the CEO of the firm, Renaud Laplanche, resigned earlier this month.
The latest talks over debt financing with Citi are still ongoing, said unnamed sources, and the process may entail that Citigroup work with Lending Club across a variety of scenarios. The banking giant may buy the loans outright, said the newswire, or may provide financing that would let other entities do that debt buying.
The firm has also been the in the midst of continuing to find new buyers for the loans in the weeks since the CEO’s resignation, which, in part, led to the termination by Jefferies Group of its relationship with the company. Similarly, Goldman exited its relationship with the firm as well.
The news of the possible linkup with Citi helped change investor sentiment on Lending Club — at least, for a day — as shares spiked 13 percent to close just below $5. That being said, the stock is still down roughly 40 percent since the disclosures earlier this month. The debt load the company is carrying totals about $4.6 billion, and against that backdrop, significant financial backing from a firm with the firepower of Citi could be of huge significance. Debt has been growing faster than assets (never a good sign when business tightens). It could be the case that, in an effort to attract new business/investors, Lending Club might boost rates, which would hit margins.
Separately, Bloomberg reported that Laplanche borrowed money from former Morgan Stanley CEO John Mack. Morgan helped take Lending Club public two years ago. Had the loan from Mack not come through, the Lending Club CEO would have had to sell at least part of his holdings in the company, which would have sent shares lower.