Dear Wall Street Insights & Indictments Reader,
LendingClub Corp. (NYSE:LC), the first peer-to-peer lending site to go public, looked like a serious financial sector disruptor in December 2014 after its stock shot up 56% with its initial public offering (IPO).
Eight months later, I warned my readers about LendingClub’s pitfalls in “Storm Clouds Are Gathering Around Peer-to-Peer Lending.” And again, only two days after the one-year anniversary of LC’s IPO, I released another piece inspired by LendingClub, “I Warned You about ‘P2P Lending’ – And I Was Right.”
I hope you listened to me.
Not only has LC’s stock collapsed, but the company’s also reeling from regulatory hits, it just announced a lawsuit with the Federal Trade Commission, and it’s facing a class-action lawsuit over lack of material disclosures that should have warned shareholders the stock was vulnerable to investigations.
The Numbers Don’t Lie
LendingClub sure looked like a new-era disruptor to reckon with at the time of its IPO on December 10, 2014.
While the first range suggested for the stock’s coming out party was $10-$12, it got bumped up to $12-$15 a day before its IPO. It was priced at $15 the night before breaking out onto the New York Stock Exchange and soared 56% that Thursday.
Coming out at the high end of its expected range and continuing to rocket upwards was even more impressive given the Dow Jones Industrials had sunk 200 points the day before.
The IPO raised $870 million for the company and gave it a capitalization of $8.5 billion.
But the IPO day’s high watermark of $24.75 was about as close to the sun as LC would fly.
Eight months later, when I warned about troubles in paradise, the stock was already down 36%, trading at just about $15. It was still hanging around that level when I warned about it again in December 2015.
Today, LC’s stock is trading pennies above its all-time low of $2.57, down 89% from its opening day achievement, and down 82% from where I warned about the tough road ahead.
That sky-high market cap of more than $8.5 billion has dwindled down to just $1.12 billion..
Another Day, Another Scandal
The latest regulatory blow to LC comes from the Federal Trade Commission (FTC). Last Wednesday, May 2, the FTC accused the online lender of deceiving borrowers about fees and removing money from their bank accounts without authorization.
According to The Wall Street Journal, “The FTC said the San Francisco-based company often charges borrowers more than $1,000 to take out a loan even though its advertisements promise that LendingClub loans carry ‘no hidden fees.'”
The claims were made in a lawsuit filed in California federal court on Wednesday,
LendingClub replied saying it “believes the FTC is wrong and that its claims can’t be reconciled with LendingClub’s track record of consumer satisfaction.”
The Wall Street Journal noted that LendingClub wrote in a blog post that several of the allegations “… are based on matters and policies that we had already previously improved as part of the normal course of business.”
Not only is the FTC suing the company for misleading and hidden fees, the Commission alleges that LendingClub “… automatically withdrew monthly loan payments from customers’ bank accounts, even after they paid off a loan.”
If you didn’t heed my warnings and held onto the stock, you may be able to get some compensation by joining a class action suit as part of the “lead plaintiff” group suing the company in the U.S. District Court for the Northern District of California for failure to disclose material information (during the Class Period February 18, 2015 through April 25, 2018), which would have alerted shareholders to the company being investigated.
But you only have to July 2, 2018 to join the class action, so get Googling and get out what you can.
You Were Warned
As if litigation isn’t enough, LendingClub’s suffering isn’t yet over; the company will continue to receive blows from the flattening yield curve.
The money that’s coming into LendingClub is all “short-term” funding. That means investors who put up loan money on the site are borrowing it in the short-term borrowing arenas available to them.
As short-term rates rise, relative to longer-term rates not following suit, hence the so-called flattening of the yield curve, lenders will demand more from borrowers to offset their higher cost of money.
The prospect of short-term rates continuing to rise is compounded by the Treasury’s record borrowing needs, their issuance of short-term bills and notes to cover their borrowing requirements and the Federal Reserve’s intention to raise the federal funds (the shortest term borrowing cost) for banks throughout 2018 and into 2019.
The effects of this shift will be felt all throughout the markets, and LendingClub won’t be the only former darling to falter and (eventually) die.
Now, ask yourself, do you really want to make investing a second career? Do you want to waste your time tracking 9,100 stocks, stressing over which ones to invest in, only to watch your money go up in flames?
That’s what stock investing has become – a GIANT wormhole. The odds are almost ALWAYS against you. Don’t believe me? Look at this:
Since January 1, 2018, only 38% of all stocks have gone up in price. That’s significantly worse odds than a coin flip.
In fact, the average stock has gone DOWN by 1%. And this is happening while corporate profits are at a five-year high and unemployment is at a 45-year low…
You’d think with the economy as strong as it is, you’d have better odds with stocks.
But NO, you do NOT.
So if you want to keep believing that stocks are the “end all be all” for making money… You might as well close out of this article now.
On the other hand, if you’re interested in potentially making $2,900, $7,200, $11,000 (or much more) every week, on the same investment, with zero stress and zero hassle…
So, if you think LC’s stock down here looks like it’s worth taking on, I say good luck with that.
You’ve been warned.