LendingClub Corp: Here’s Why LendingClub Stock Is Going Crazy This Morning

LendingClub CorpLending Club Stock Tumbles After CEO Resigns

LendingClub Corp (NYSE:LC) stock plunged Monday morning, signaling what could be the end of the peer-to-peer (P2P) lending business.

LendingClub CEO Renaud Laplanche is stepping down from his position with the company. In a statement Monday, LendingClub said Laplanche would resign after “an internal review of sales of $22.0 million in near-prime loans to a single investor, in contravention of the investor’s express instructions as to a noncredit and nonpricing element, in March and April 2016.” (Source: “Lending Club Reports First Quarter 2016 Results – Chairman & CEO Renaud Laplanche Resigns,” LendingClub Corp Investor Relations, May 9, 2016.)

This news follows a disappointing earnings report, which saw the company miss profit expectations. LendingClub earned $0.01 per share during the first quarter, less than the $0.05 that was expected, according to estimates from Yahoo! Finance.

Investors hammered shares of LendingClub stock following the news. LC stock dropped by as much as 30% in pre-market trading. Following the market open, shares of LendingClub stock were down approximately 24.5%.

The one-two punch of disappointing news comes right as investors are worried about LendingClub’s entire business model. Following the financial crisis, the company pioneered the concept of P2P lending, matching lenders and borrowers directly, while cutting out the middlemen, like banks and other financial institutions.

The problem, which is now becoming apparent, is that assessing credit risk online is incredibly difficult. According to reports from LC Advisors, an investment advisory owned by LendingClub, loan write-downs have been twice as high as forecasted. If that’s true, the company’s entire business model could be at risk. (Source: “P2P Bubble Bursts? LendingClub Stock Plummets 25% After CEO Resigns On Internal Loan Review,” ZeroHedge, May 9, 2016.)

Does this spell the end of P2P lending? It certainly should keep investors up at night. Shareholders will be watching the financial results from other platforms, such as Avant, Inc., Prosper Marketplace, Inc., and On Deck Capital, Inc., closely in the months ahead.