Google Invests $125 Million in Lending Club

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LFKB
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Google Invests $125 Million in Lending Club

Post by LFKB »

Google announced today that they are investing $125 million for a ~7% equity stake in Lending Club, valuing the company at $1.55 billion.

Does this give you more confidence in lending to Lending Club? The returns they advertise have been very good, but of course they come with risk.

Anyways, I would be interested to get people's thoughts on Lending Club from those who have used it and also those who have looked into it but decided not to invest. If you decided not to invest, does Google's investment have any impact on your decision?

Thanks

Lending Web Site Gains a Shareholder in Google
http://dealbook.nytimes.com/2013/05/02/ ... ding-club/

Lending Club Website
http://www.lendingclub.com/
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Blues
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Re: Google Invests $125 Million in Lending Club

Post by Blues »

I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
Imbros
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Re: Google Invests $125 Million in Lending Club

Post by Imbros »

LFKB wrote:Does this give you more confidence in lending to Lending Club? The returns they advertise have been very good, but of course they come with risk.
More confidence? no, not really. i have been always confident in LC's business model. They have been a profitable company for a couple of months now. Google has plenty of cash and $125 mil. is probably peanuts fo them.

I have been investing in LC for over 3 years and now I am slowly withdrawing my funds in order to put more into tax deferred and advantaged accounts. I think LC investing can be a part of any portfolio as long as it is no more than 5% of overall sum.
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LFKB
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Re: Google Invests $125 Million in Lending Club

Post by LFKB »

Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
I hadn't done much research into Lending Club, this article was very insightful. Thanks for sharing.

I wonder what rated bonds Allan bought? He didn't explicitly state that in the article.
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White Coat Investor
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
I wouldn't let Allan's experience turn you off. Yes, the returns stated by Lending Club are too optimistic, but that doesn't mean solid returns aren't available. My personal annualized return is over 15% from my Lending Club notes over the last 20 months or so. I haven't had any defaults (because I sell them at a discount when they go into the grace period.) But I can sell an awful lot of notes at a discount and still get a great return when the notes are yielding 20% plus.

1000 11/18/2011
-20 11/18/2011
-1011.56 12/31/2011
1011.56 12/31/2011
5000 9/13/2012
5000 10/31/2012
-11452.89 12/31/2012
11452.89 12/31/2012
-$12,059.08 5/4/2013

XIRR = 15.34% (Lending Club says 23% on the Roth IRA money I put in last fall, but I calculate it at 16.26% using XIRR)

There are over 500 notes, none are in the grace period, late, or defaulted. I mean, I have no idea what's going to happen over the next 5 years to all these notes, but it's awfully promising so far. I've got another Roth transfer coming in and plan to build it up to 5% of my portfolio. They certainly don't seem to have much correlation with my other asset classes.

The big problem I have with investing at Lending Club isn't that the returns aren't good, it's that it's far more time consuming than just buying, holding, and rebalancing a set of index funds. There are ways to automate it, but it's still an order of magnitude more time consuming.

P.S. It would appear that I'm a better active manager than Mr. Roth. :)

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Re: Google Invests $125 Million in Lending Club

Post by Blues »

EmergDoc wrote:
Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
I wouldn't let Allan's experience turn you off. Yes, the returns stated by Lending Club are too optimistic, [snip...]
Thanks, but I only provided the link to Allan's blog for the OP. It's just not something that I would be interested in regardless of Allan's or anyone else's experience with the venture.
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Re: Google Invests $125 Million in Lending Club

Post by plnelson »

EmergDoc wrote:
Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
I wouldn't let Allan's experience turn you off. Yes, the returns stated by Lending Club are too optimistic, but that doesn't mean solid returns aren't available.
But isn't saying that " the returns stated by Lending Club are too optimistic" equivalent to saying that they are lying to the investment community (i.e., us)? Why should anyone invest a penny in a company that's not committed to honest bookkeeping?

The Allan Roth article says, "According to the Lending Club, annual returns have averaged 5.49 percent for their highest rated "A" loans". Why would a low-risk borrower be willing to pay such a high interest rate in today's interest rate environment? It doesn't smell right.
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Re: Google Invests $125 Million in Lending Club

Post by Jebediah »

Recent thread about actual LC returns here:

http://www.bogleheads.org/forum/viewtop ... 0&t=112437

Backtest of returns for 3 year notes issued between 2007 and 2009 (maturing 2010-2012), broken down by loan grade:

----------
A: 4.74%
B: 1.53%
C: 0.69%
D: -1.35%
E: 0.79%
F: -6.76%
G: -2.34%

total: 0.22%
------------

Interesting "timing" scheme proposed by EmergDoc. I just hope the day doesn't come when you can't unload them so easily. Tons of maintenance work there too.
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Re: Google Invests $125 Million in Lending Club

Post by SSSS »

I live in a state where Lending Club only allows access to the secondary market note trading platform, not new issue purchases. I am very unsatisfied with Lending Club. Ever after spending many hours studying and attempting to master the horribly-designed and badly-managed note trading platform, I've only got $460 left out of an initial $500 investment after about a year. I'm sure I'm not included in the published statistics, which probably only counts people in the favored states who only purchase new issues. Average results for people in the non-favored states would certainly be much more grim than the published statistics.

I've got $75 sitting in cash & I'm thinking of just pulling it out instead of spending an hour or two searching for more notes worth purchasing.
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Re: Google Invests $125 Million in Lending Club

Post by baw703916 »

This is kind of interesting. I'd heard of the concept, but had never given it serious thought before. One question for EmergDoc and anyone else who has dabbled in this: In addition to the risk grade given, do you select loans based on the stated purpose? There seem to be a lot of consolidation loans for credit card debt, with a smaller number for home improvement, etc.
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Re: Google Invests $125 Million in Lending Club

Post by z3r0c00l »

$125 million more than I will :) I do enjoy reading the individual loan descriptions and such.
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Re: Google Invests $125 Million in Lending Club

Post by mike143 »

I have taken a loan from LendingClub (now paid off, was cheaper the credit card rates), but can't convince myself to invest. I just invest taxable, after max 401k and roth, with non-Boglehead Vanguard ETFs.
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Re: Google Invests $125 Million in Lending Club

Post by baw703916 »

mike143 wrote:I have taken a loan from LendingClub (now paid off, was cheaper the credit card rates), but can't convince myself to invest. I just invest taxable, after max 401k and roth, with non-Boglehead Vanguard ETFs.
Mike,

Thanks for sharing your experience. Your situation (getting out of credit card debt) sounds like a situation where this could be beneficial for the borrower, provided they actually get out of credit card debt.

I think Vanguard ETFs are perfectly fine Boglehead investments, BTW. I have about 7 of them (obviously, I'm not the 3 fund mutual fund shares only purist type of Boglehead.

Brad
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otbricki
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Re: Google Invests $125 Million in Lending Club

Post by otbricki »

LFKB wrote:Google announced today that they are investing $125 million for a ~7% equity stake in Lending Club, valuing the company at $1.55 billion.

Does this give you more confidence in lending to Lending Club? The returns they advertise have been very good, but of course they come with risk.
Not really. Taking an equity stake in Lending Club is not the same thing at all as supplying capital for personal unsecured loans.
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Re: Google Invests $125 Million in Lending Club

Post by RenoJay »

I've invested a considerable sum with Lending Club and Prosper, although it represents a fairly small amount of my total portfolio. Overall, I've monitored Prosper for a few years. I never take any money out, and all pay offs and interested are automatically reinvested for me. For the past three or so years the actual return has been around 9%, and I treat it like a passive index fund. I do nothing with it.

With Lending Club, I have a harder time figuring out my actual return because I need to choose the loans myself. That mean there's often cash sitting in my LC account uninvested. Furthermore, it's quite common for borrowers to prepay their loans. That also makes it challenging to calculate a return. Finally, I've taken out money, opened an LC IRA, etc. so it becomes even more challenging to figure out my ROI.

Overall, LC reports my ROI as being around 9%. I just read their explanation of how they calculate return, and once a loan goes into default it appears they account for it.

I have mixed feeling about this P2P investing. I've become more interested in private lending where there's collateral because it incents the borrower not to default (for fear of losing their car, house, etc.) and also provides something tangible with equity to foreclose if the borrower does default. I don't think I'll be increasing my LC allotment real soon.
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Re: Google Invests $125 Million in Lending Club

Post by Boglenaut »

I read some time ago about a fund that was being set up to invest in Lending Club loans.
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Re: Google Invests $125 Million in Lending Club

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general investing).
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

baw703916 wrote:This is kind of interesting. I'd heard of the concept, but had never given it serious thought before. One question for EmergDoc and anyone else who has dabbled in this: In addition to the risk grade given, do you select loans based on the stated purpose? There seem to be a lot of consolidation loans for credit card debt, with a smaller number for home improvement, etc.
Yea, I only do credit card debt/loan consolidation. Definitely NO BUSINESS LOANS. Nothing personal, I just go with what seems to have worked in the very limited past data sets.
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

plnelson wrote:
EmergDoc wrote:
Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
I wouldn't let Allan's experience turn you off. Yes, the returns stated by Lending Club are too optimistic, but that doesn't mean solid returns aren't available.
But isn't saying that " the returns stated by Lending Club are too optimistic" equivalent to saying that they are lying to the investment community (i.e., us)? Why should anyone invest a penny in a company that's not committed to honest bookkeeping?

The Allan Roth article says, "According to the Lending Club, annual returns have averaged 5.49 percent for their highest rated "A" loans". Why would a low-risk borrower be willing to pay such a high interest rate in today's interest rate environment? It doesn't smell right.
It's unsecured. What do you think the rate on unsecured loans is? Try to get one some time to pay off over 3-5 years. I can get one for 15 months for a 4% transfer fee, but if I want one for a few years, the best things I see are in the 7-10% range. But besides, this isn't about low-risk borrowers. It's about the highest risk borrowers that still meet LC crieria. I want the 20-23% yielding notes. They have a high default rate, but not high enough to erase the returns.

I don't know what you mean by lying. Hardly anyone I know knows how to calculate an investment return. Most people don't know or care enough about it to do it themselves anyway. Vanguard doesn't publish annualized returns on the website, it publishes average annual (arithmetic) returns. Are they lying? Both Vanguard and Lending Club explain clearly on their website what they're publishing, if you know what to look for. Here's what the website says:

Lending Club Notes have provided a Net Annualized Return by grade between 5.49% for A grade Notes and 11.91% for G grade Notes. You can choose the grade or grades that fit your investment goals. Net Annualized Return3 per grade net of defaults and fees from inception to April 8, 2013

1 Return calculations based on accounts that have invested in 800 or more unique borrowers. 800 Notes can be purchased with $20,000. All data as of April 8, 2013. The availability of Notes/unique borrowers is dependent on your investment criteria. There is no guarantee that you will be able to invest in 800 or more Notes/unique borrowers promptly, if at all. The foregoing is not directed to the specific investment objectives, financial situation or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.

2 US Census Bureau, 2008

3 To be included in the Net Annualized Returns calculation, a Note must have been originated at least 3 months prior to the calculation date.

4 Net Annual Return of individual grades as of April 8, 2013.

My opinion is that if you cherry pick notes similar to the higher performing notes in the past you can expect long-term returns in the 8-12% range. That seems appropriate for the level of risk and hassle to me.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

With all due respect to Allan Roth, I don't feel the slant of his article is accurate towards LC. As regards loans that have become late, LC moves these loans into default/charge off status relatively quickly (typically 4-6 months if no payments made), but cannot fully write these loans down until they've moved thru the collection cycle. Allan based his review on less than a 1 year experience with his portfolio (he doesn't state if he chose them or if he let LC choose them). Generally, its my experience that loans ive chosen have performed better than the ones i let LC choose for me. The fact that LC is now profitable and Google has made an investment (as have other notables), seems to certify to me that LC may be moving more to the mainstream lending arena.

I have been with LC for nearly 3 years now earning a net return of over 11% (accounting for loan defaults/charge offs). With the preset filters, not really much work to keep the loan pmts fully invested while adding new money (I spend way less time on LC than on this site). I have had difficulty at times finding loans to meet my filtered criteria (I was going in once a week to choose loans), but LC advised to try every few days, as loans were funding in as quick as 24 hours in recent months- this solved the problem. Once you have some experience on the LC site, you will have a better idea personally on how to set your filters, and types of loans to avoid that cant be filtered (which I've narrowed down from trends I've noticed by spreadsheeting the charged off loans in my portfolio).

I've tracked portfolio performance by year vintage, and have generally found that the sweet spot for portfolio construction are B/C loans with a small equal weighting of a A to D/E/F loans. I had started out back in 2010 with a more conservative approach- had no defaults, but my return was around 7%. I feel it's better to take on some measured risk, for the better return for time invested.

Investing with LC is different than buying an index fund, but IMO offers a an alternative bond like return, though not as liquid as a fund. I plan to invest up to 4-5% of my portfolio with LC. I've told my wife should something happen to me to just let the loans liquidate, which should provide a nice income stream for 3-4 years until they fully pay out in 5 years.

LC isn't for everyone, but for those willing to understand it, can provide a nice return if you have the patience to build out a portfolio.
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Re: Google Invests $125 Million in Lending Club

Post by Allan Roth »

bill1958 wrote:With all due respect to Allan Roth, I don't feel the slant of his article is accurate towards LC.
If you say I'm inaccurate can you at least tell me what is either factually inaccurate or what you feel you don't agree with? If you re-read my piece, you'll see I say when the note is taken out of the returns at 120 days. Do you disagree with the big bold disclosure I suggested?

I stand by my piece that the Lending Club responded to me in a very non-defensive way that a big bold disclosure should state that the returns reflect the full value of delinquent notes and the interest from those notes that, in the aggregate are unlikely to be collected."

Finally, I disagree with your assertion that that the Lending Club couldn't estimate the value of those notes. At the very least, they could discount the principal by 42% and I can't think of any logic to include the interest on delinquent notes at full value.

I take seriously an allegation of inaccuracy and look forward to your specifics.
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Re: Google Invests $125 Million in Lending Club

Post by Allan Roth »

EmergDoc wrote:
Blues wrote:I wouldn't do it myself. Here's a recent blog from Allan Roth:

http://www.cbsnews.com/8301-505123_162- ... al-review/
P.S. It would appear that I'm a better active manager than Mr. Roth. :)

http://whitecoatinvestor.com/tag/lending-club/
I would certainly agree that, as a novice with the Lending Club, I realized I was on the steep part of the leaning curve and that someone who knew what they were doing could select loans better than me. The lending club disagreed and stated that they were efficiently pricing the loans.

Remember my piece was not so foolish as to take my 95 loans and extrapolate to the whole, it was merely to point out a build in bias in the reporting.
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Re: Google Invests $125 Million in Lending Club

Post by LadyGeek »

To the new investors, Allan Roth's background info is in the wiki: Allan Roth
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

Allan Roth wrote: it was merely to point out a build in bias in the reporting.
Agreed.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

My point is the same as that as EmergDoc- the article seemed to be biased against LC because of Allan's inexperience of using the site. Admittedly LC is not for all investors, but can provide a good alternative investment while diversifying the risk of this type of lending across many loans (instead of the hard money lending in mortgages that I've seen mentioned from time to time on this site). The sample of loans measured by Allan is relatively small, and being a noobie on the site, his loan selection may have been poor (he hasn't stated how he selected his loans). I stand by my previous comments.
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Re: Google Invests $125 Million in Lending Club

Post by avalpert »

LFKB wrote:Google announced today that they are investing $125 million for a ~7% equity stake in Lending Club, valuing the company at $1.55 billion.

Does this give you more confidence in lending to Lending Club?
This gives me some more confidence that the personal data they are collecting has marketing value but why on earth would this give you any confidence in it as an investment channel?
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Re: Google Invests $125 Million in Lending Club

Post by Allan Roth »

bill1958 wrote:My point is the same as that as EmergDoc- the article seemed to be biased against LC because of Allan's inexperience of using the site. Admittedly LC is not for all investors, but can provide a good alternative investment while diversifying the risk of this type of lending across many loans (instead of the hard money lending in mortgages that I've seen mentioned from time to time on this site). The sample of loans measured by Allan is relatively small, and being a noobie on the site, his loan selection may have been poor (he hasn't stated how he selected his loans). I stand by my previous comments.
Please re-read the article. The point wasn't that I extrapolated my small sample size and lack of experience. It was that the reporting from lending club included the full value of principal and interest from delinquent loans. You stand by your statement that my piece was inaccurate yet fail to point out an inaccuracy. You believe I am extrapolating my experience when that is not the case. You don't buy my point on the reporting bias yet Lending Club execs do.

Tell you what - I agree with you if you agree to buy delinquent loans from LC investors at their full principal and interest included in the LC stated returns. Deal?
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Re: Google Invests $125 Million in Lending Club

Post by madbrain »

RenoJay wrote: With Lending Club, I have a harder time figuring out my actual return because I need to choose the loans myself. That mean there's often cash sitting in my LC account uninvested. Furthermore, it's quite common for borrowers to prepay their loans. That also makes it challenging to calculate a return. Finally, I've taken out money, opened an LC IRA, etc. so it becomes even more challenging to figure out my ROI.
I did some Lendingclub for a while in a Roth IRA.

I withdrew the money after less than a year, because it was was way too painful to keep track of the hundreds of $25 notes I had. The process to sell the notes through their awful trading platform was lengthy, and involved giving back almost all of the interest in the forms of markdowns.

Actual numbers/dates from Quicken where I kept track of the totals :
2/28/2011 invested $11,000 into SDIRA . Then invested in Lendingclub.
11/xx/2011 all LC notes sold.
12/19/2011 withdrew $11,000 from SDIRA, rolled over to Vanguard
10/4/2012 withdrew $11,147.52 from SDIRA rolled over to Vanguard

It took 10 months between the last 2 withdrawals because Self Directed IRA somehow kept losing my rollover check to Vanguard. The fee for closing SDIRA was high, I think $150.

According to Lendingclub, this all added up to an annualized return of 9.96%. Worse, even though I have had a zero balance for over a year, Lendingclub keeps sending me monthly statements showing the exact same $9.96% return. The last one I received was emailed to me on 4/8/2013, for the month of March 2013.
It's quite remarkable. I suppose it's not technically lying, since 9.96% of 0 is still 0. But what's stopping them from showing a billion percent return too ?
I hope my exceptional "rate of return" isn't use in all their statistics. It's above-average, after all, if you trust it !

IMO, there is no excuse for Lendingclub to put out bogus account statements like the ones I continue getting. I know how to calculate a rate of return, unlike LendingClub and it sure as hell wasn't 9.96%. There may be a lot of people who don't know how to calculate a rate of return, indeed, and think they are getting a good deal via Lendingclub. SDIRA also has high costs and poor service.

The funds are now back in Vanguard VWEAX , high-yield bond admiral, where the account statements actually add up to something that makes sense.
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Re: Google Invests $125 Million in Lending Club

Post by madbrain »

I just read the article from Allan Roth - looks like he had the exact same experience that I did, as I related in my previous post.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

Allan Roth wrote:Please re-read the article. The point wasn't that I extrapolated my small sample size and lack of experience. It was that the reporting from lending club included the full value of principal and interest from delinquent loans. You stand by your statement that my piece was inaccurate yet fail to point out an inaccuracy. You believe I am extrapolating my experience when that is not the case. You don't buy my point on the reporting bias yet Lending Club execs do.

Tell you what - I agree with you if you agree to buy delinquent loans from LC investors at their full principal and interest included in the LC stated returns. Deal?
Alain, appears we will agree to disagree. I did re-read your article, my perception (correct or incorrect IYO) is the slant is inaccurate regarding LC- 1) you lead the reader to initially believe the returns of these loans are poor based on a relatively small sample portfolio held for a short period of time (kind of like trying to extrapolate a fund return from a short holding period). You also don't state your loan selection criteria (A loans vs more risky loans, or filter criteria used). 2) you then lead the reader into the mark to market discussion (I do understand the concept) regarding delinquent loans. LC isn't required to use this accounting method for delinquent loans held to maturity, however their website is very transparent with loan stats regarding delinquent loans vs. default loans (broken down by loan grade), and the loan stats regarding typical loss of these delinquent loans if you want to layer in the additional expected loss for delinquent loans (the website lets you measure various time periods). IMO I would rather have this info broken out as they do their website (rather than buried in a prospectus). If you want to have a proper mark to market discussion, perhaps you should discuss how LC differs in their handling of these loans vs. other lending institutions.

These investments aren't for everyone, and LC IMO does a good job making this point. As mentioned in my previous post, like any investment, the investment requires the patience of time, the patience to fully understand it, and with this investment there are a few other moving parts, which may make investment unsuitable for some/many investors who prefer a more passive approach to investing.
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Re: Google Invests $125 Million in Lending Club

Post by SSSS »

madbrain wrote:The process to sell the notes through their awful trading platform was lengthy, and involved giving back almost all of the interest in the forms of markdowns.
The note trading platform is terrible for buying, too. Residents of many states are not allowed to purchase new-issue notes, meaning it's either the note-trading platform or nothing.
According to Lendingclub, this all added up to an annualized return of 9.96%.
They're quoting mine at -14.02%. I wonder if it would be even worse if it weren't for their creative accounting.
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Re: Google Invests $125 Million in Lending Club

Post by Allan Roth »

bill1958 wrote:
Allan Roth wrote:Please re-read the article. The point wasn't that I extrapolated my small sample size and lack of experience. It was that the reporting from lending club included the full value of principal and interest from delinquent loans. You stand by your statement that my piece was inaccurate yet fail to point out an inaccuracy. You believe I am extrapolating my experience when that is not the case. You don't buy my point on the reporting bias yet Lending Club execs do.

Tell you what - I agree with you if you agree to buy delinquent loans from LC investors at their full principal and interest included in the LC stated returns. Deal?
Alain, appears we will agree to disagree. I did re-read your article, my perception (correct or incorrect IYO) is the slant is inaccurate regarding LC- 1) you lead the reader to initially believe the returns of these loans are poor based on a relatively small sample portfolio held for a short period of time (kind of like trying to extrapolate a fund return from a short holding period). You also don't state your loan selection criteria (A loans vs more risky loans, or filter criteria used). 2) you then lead the reader into the mark to market discussion (I do understand the concept) regarding delinquent loans. LC isn't required to use this accounting method for delinquent loans held to maturity, however their website is very transparent with loan stats regarding delinquent loans vs. default loans (broken down by loan grade), and the loan stats regarding typical loss of these delinquent loans if you want to layer in the additional expected loss for delinquent loans (the website lets you measure various time periods). IMO I would rather have this info broken out as they do their website (rather than buried in a prospectus). If you want to have a proper mark to market discussion, perhaps you should discuss how LC differs in their handling of these loans vs. other lending institutions.

These investments aren't for everyone, and LC IMO does a good job making this point. As mentioned in my previous post, like any investment, the investment requires the patience of time, the patience to fully understand it, and with this investment there are a few other moving parts, which may make investment unsuitable for some/many investors who prefer a more passive approach to investing.
You are reading into the piece what you want - searching for confirmation bias and calling inaccurate the fact that delinquent loans should not be calculated at their full value and that disclosure of such calculation should be in big bold language. You believe I have extrapolated my 95 loans though the piece makes no such extrapolation and merely notes a systemic over valuation. Thank you for keeping markets efficient.
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

Keep in mind that Google is buying part of lending club (i.e. a 7% portion of thep rofits it makes) NOT investing in peer to peer lending. None of the lenders need to make money for Google to do just fine.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

Alain, I'm surprised at the bit of sarcasm at the end of your last 2 responses to my posts. I simply am stating why IMO I think your article is biased based on a small portfolio sample which you state was only aged a few months. You still haven't addressed why LC should mark to market their delinquent loans, when other financial institutions are not required to do so loans held to maturity. As mentioned in the last post, LC provides any and all delinquency and expected loss data by credit grade on their website.

If you disagree with me and the premise for investing in LC loans, that is fine, but no need for the sarcasm. Hopefully you don't treat others that disagree with you in this manner.
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Re: Google Invests $125 Million in Lending Club

Post by ryuns »

I'm still trying to draw my own conclusions. I only have $2500 (up to $2700 from interest) invested at this point and about $100 has been charged off. Doing any work is an absolute non-starter for me, so when they say I have some free money to re-invest, I just click through their random portfolios and don't even look at what I'm going to fund. I'm at about 7% annualized, and most of the money is pretty old, so that number is starting to approach some semblance of mathematical honesty. Whether that's worth investing more in, I haven't decided. At my level of effort and given the fact that these are, theoretically, less risky, that's obviously pretty good, but it's difficult to understand what risks I'm ignoring, what might show up later, and how much I'm leaving on the table by not paying attention to the "portfolio" at ll.

The tax drag is brutal (with respect to the return--in $ terms, it's a pittance), so I think additional investment would have to be in a Roth, and the opportunity cost of using a year's Roth space for something other than my stated AA seems tragic.
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Re: Google Invests $125 Million in Lending Club

Post by Allan Roth »

bill1958 wrote:Alain, I'm surprised at the bit of sarcasm at the end of your last 2 responses to my posts. I simply am stating why IMO I think your article is biased based on a small portfolio sample which you state was only aged a few months. You still haven't addressed why LC should mark to market their delinquent loans, when other financial institutions are not required to do so loans held to maturity. As mentioned in the last post, LC provides any and all delinquency and expected loss data by credit grade on their website.

If you disagree with me and the premise for investing in LC loans, that is fine, but no need for the sarcasm. Hopefully you don't treat others that disagree with you in this manner.
I am merely noting you feel certain that I'm extrapolating my own experience to overall returns. In fact, what I am doing is taking my own experience that my returns were overstated, confirming it's systemic, and concluding that the method LC is using has systemic bias. I did not mean to be sarcastic. In my experience, a smart person can fail to grasp a simple concept like that and claim an inaccuracy when they really want to believe something. When you claim my piece is inaccurate and fail to list a single specific sentence and point out the inaccuracy, I think you are believing in what you want to believe and no amount of logic will change that. My comment was meant to be direct but not sarcastic.

I certainly think the bold disclosure should be there and LCs response was non-defensive. You ask why I believe LC should mark to market delinquent loans - because believe the investor deserves a fair shake and telling them returns are higher than they are actually likely to realize is just plain wrong in my opinion. We agree to disagree on this point.

BTW, why do you call me Alain? Just curious.
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Re: Google Invests $125 Million in Lending Club

Post by plnelson »

EmergDoc wrote:
plnelson wrote:
But isn't saying that " the returns stated by Lending Club are too optimistic" equivalent to saying that they are lying to the investment community (i.e., us)? Why should anyone invest a penny in a company that's not committed to honest bookkeeping?

The Allan Roth article says, "According to the Lending Club, annual returns have averaged 5.49 percent for their highest rated "A" loans". Why would a low-risk borrower be willing to pay such a high interest rate in today's interest rate environment? It doesn't smell right.
It's unsecured. What do you think the rate on unsecured loans is? Try to get one some time to pay off over 3-5 years. I can get one for 15 months for a 4% transfer fee, but if I want one for a few years, the best things I see are in the 7-10% range. But besides, this isn't about low-risk borrowers. It's about the highest risk borrowers that still meet LC crieria. I want the 20-23% yielding notes. They have a high default rate, but not high enough to erase the returns.
Are you saying that the low risk borrowers in their A/B/C... scheme aren't really that low risk by conventional standards? What credit scores do their letter grades correspond to?
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Re: Google Invests $125 Million in Lending Club

Post by baw703916 »

plnelson wrote:Are you saying that the low risk borrowers in their A/B/C... scheme aren't really that low risk by conventional standards? What credit scores do their letter grades correspond to?
Actually you can go to the site and browse the loans in search of funding, which lists the letter grades and a credit score range. "A" does not mean Boglehead, although some Bogleheads seem to have issues with credit scores, simply because their spending habits are so out of the mainstream that the models don't know what to make of them.
Most of my posts assume no behavioral errors.
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Re: Google Invests $125 Million in Lending Club

Post by 3CT_Paddler »

My hunch is that there is a very large systematic risk component. In 2008 Lending Club and other similar platforms had a really bad year or two and they blamed it on the platform/design of the system. I wonder if the real issue has more to do with the riskiness of the class when a recession hits.

And I also think that there is a limited supply of "good" debt here. As the platform matures and there is a longer record of high returns, I would think that larger players would get involved here and drive down the yield of the debt... making it equivalent to a junk bond asset class.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

Allan Roth wrote:
bill1958 wrote:Alain, I'm surprised at the bit of sarcasm at the end of your last 2 responses to my posts. I simply am stating why IMO I think your article is biased based on a small portfolio sample which you state was only aged a few months. You still haven't addressed why LC should mark to market their delinquent loans, when other financial institutions are not required to do so loans held to maturity. As mentioned in the last post, LC provides any and all delinquency and expected loss data by credit grade on their website.

If you disagree with me and the premise for investing in LC loans, that is fine, but no need for the sarcasm. Hopefully you don't treat others that disagree with you in this manner.
I am merely noting you feel certain that I'm extrapolating my own experience to overall returns. In fact, what I am doing is taking my own experience that my returns were overstated, confirming it's systemic, and concluding that the method LC is using has systemic bias. I did not mean to be sarcastic. In my experience, a smart person can fail to grasp a simple concept like that and claim an inaccuracy when they really want to believe something. When you claim my piece is inaccurate and fail to list a single specific sentence and point out the inaccuracy, I think you are believing in what you want to believe and no amount of logic will change that. My comment was meant to be direct but not sarcastic.

I certainly think the bold disclosure should be there and LCs response was non-defensive. You ask why I believe LC should mark to market delinquent loans - because believe the investor deserves a fair shake and telling them returns are higher than they are actually likely to realize is just plain wrong in my opinion. We agree to disagree on this point.

BTW, why do you call me Alain? Just curious.
Allan, I agree that we will agree to disagree- especially since you don't appear to want to address the observations I've noted in this thread. Regarding a smart person failing to grasp a simple concept when they want to believe in something- this cuts both ways.

My apologies for the mis-spelling of your name- my tablet apparently kept changing it on me- no slight intended.
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Re: Google Invests $125 Million in Lending Club

Post by RochMN »

I've been with LC for about 8 months now and have just over 5k invested. Really enjoyed checking it daily, reinvesting funds, tweaking the filters etc. Something I like to do for a few minutes a day before shutting down for the night. My split is 75% 5 year, 25 % 3 year. Then about 10% B, 45% C, 25 % D, 15 % E and then 5% F and G rated notes. Current stated rate of return is about 18.5%.

My main concern is liquidity. Right now it is very easy to dump a note when you see it start to have issues. I would guess I've sold six so far. A recent example would be a note that made maybe 5 or 6 payments and then didn't batch through with the rest of the notes due that same day. I went to the trading platform, took $0.25 off the principal balance and it sold overnight for a few dollar profit something like this:

$25 note, $5 in payments, principal +accrued interest $23, sell for $22.75 and then $0.23 in trading fees, profit of about $2.50

I think this (dropping notes as they show signs of non-performance) really is one of the keys to long term success and so far so good. Most notes come back and a payment is made but I'm fine not taking that risk.

I've had two notes pay off and all I can think is good for them. Hopefully in my little way I helped them get out of debt.

Like I say, I've really enjoyed the experience so far but can see that it isn't for everyone.
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Re: Google Invests $125 Million in Lending Club

Post by SSSS »

RochMN wrote:My main concern is liquidity. Right now it is very easy to dump a note when you see it start to have issues. I would guess I've sold six so far. A recent example would be a note that made maybe 5 or 6 payments and then didn't batch through with the rest of the notes due that same day. I went to the trading platform, took $0.25 off the principal balance and it sold overnight for a few dollar profit
And this is why Lending Club is terrible for people who live in states where it's only possible to acquire notes through the note trading platform. Sellers are able to list notes as "in good standing" while using information not available to the buyer to infer that the note is likely to miss its next payment. Many times I've bought a note with no indication that it wasn't current, then a couple days later it was late.

In fact, I think if the payment DOES come through while someone is attempting to purchase it, the sale is automatically cancelled. So, in other words, if the note remains in good standing, the seller keeps it; if it misses the payment, the buyer gets it (paying full price for a note that's now almost worthless).

Do not use Lending Club if you aren't in a state that allows the purchase of new-issue notes.
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

SSSS wrote:
RochMN wrote:My main concern is liquidity. Right now it is very easy to dump a note when you see it start to have issues. I would guess I've sold six so far. A recent example would be a note that made maybe 5 or 6 payments and then didn't batch through with the rest of the notes due that same day. I went to the trading platform, took $0.25 off the principal balance and it sold overnight for a few dollar profit
And this is why Lending Club is terrible for people who live in states where it's only possible to acquire notes through the note trading platform. Sellers are able to list notes as "in good standing" while using information not available to the buyer to infer that the note is likely to miss its next payment. Many times I've bought a note with no indication that it wasn't current, then a couple days later it was late.

In fact, I think if the payment DOES come through while someone is attempting to purchase it, the sale is automatically cancelled. So, in other words, if the note remains in good standing, the seller keeps it; if it misses the payment, the buyer gets it (paying full price for a note that's now almost worthless).

Do not use Lending Club if you aren't in a state that allows the purchase of new-issue notes.
Sounds like you're on to my strategy. Like I said, not an efficient market and plenty of room for good active management to add value. Now, whether it's worth your time or not to actively manage it....I'll leave you to decide. That's why all my grace period loans are for sale. If someone buys them, great. If they borrower makes a payment, my sale cancels and I can put it up for sale again at closer to full price. The data shows that grace period loans are worth about 83% of full price, so I set my price around there and seem to be able to sell them all.
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Re: Google Invests $125 Million in Lending Club

Post by cb474 »

I heard about Lending Club today on the radio and thought there's not such thing as a free lunch.

If people are earning better returns in Lending Club, than they can through more typical fixed income investements, it's because there is more risk. In this case, the risk of default is probably much higher. And of course there's the unsystematic risk (for which you're not compensated) of not having a very diversified set of investments (like the more than 1500 bonds in Vanguard's short and intermediate term investment grade funds); I'm assuming most people who use Lending Club do not have a portfolio of more than a thousand notes.

Ultimately, I don't see the difference between building a portfolio in Lending Club and investing in something like High Yield Corporate (a.k.a Junk) bonds in the effort to chase extra yield. In both cases, one is investing in riskier debt instruments in order to get higher yield, while at the same time probably discounting the real nature of the risk to one's principal. So, as with Junk bonds, one is taking on equity-like risk, but in the long run probably not getting equity-like returns, making Lending Club essentially an inefficient way to take risk.

I wonder how people will fare in Lending Club when the next financial crisis hits and the rate of default goes way up. I imagine a situation could develop very quickly, in which it's not so easy to sell notes at a discount (perhaps only pennies on the dollar). Or in a liquidity crisis, I wonder how rapidily the value of Lending Club notes will crash.

In the end, to me it seems obvious that if people are earning more return, they're taking on extra risk, and so the only question is: Is this really the most efficient way to take risk? The answer is almost certainly no. But it will take a crisis to drive the lesson home.
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

cb474 wrote:I heard about Lending Club today on the radio and thought there's not such thing as a free lunch.

If people are earning better returns in Lending Club, than they can through more typical fixed income investements, it's because there is more risk. In this case, the risk of default is probably much higher. And of course there's the unsystematic risk (for which you're not compensated) of not having a very diversified set of investments (like the more than 1500 bonds in Vanguard's short and intermediate term investment grade funds); I'm assuming most people who use Lending Club do not have a portfolio of more than a thousand notes.

Ultimately, I don't see the difference between building a portfolio in Lending Club and investing in something like High Yield Corporate (a.k.a Junk) bonds in the effort to chase extra yield. In both cases, one is investing in riskier debt instruments in order to get higher yield, while at the same time probably discounting the real nature of the risk to one's principal. So, as with Junk bonds, one is taking on equity-like risk, but in the long run probably not getting equity-like returns, making Lending Club essentially an inefficient way to take risk.

I wonder how people will fare in Lending Club when the next financial crisis hits and the rate of default goes way up. I imagine a situation could develop very quickly, in which it's not so easy to sell notes at a discount (perhaps only pennies on the dollar). Or in a liquidity crisis, I wonder how rapidily the value of Lending Club notes will crash.

In the end, to me it seems obvious that if people are earning more return, they're taking on extra risk, and so the only question is: Is this really the most efficient way to take risk? The answer is almost certainly no. But it will take a crisis to drive the lesson home.
High Yield Corporate yields 4.23% and my portfolio of Lending Club notes yields ~ 20%. Yes, there's a very big difference and the risk of default in my portfolio is probably much higher. I'm not sure why you think there's equity risk there. What's the equity? Do these people have stock I could buy instead?

So yes, more return, more risk. Most efficient way? Who cares? You can't eat efficiency. All I know is I'm making 15%+ on my lending club notes, the stock market feels bubblicious, and bonds yield less than 2%. Is it all going to implode and I'm going to lose 5% of my portfolio? Perhaps. That doesn't seem all that different from what can (and has) happened to the equity portion of my portfolio. Heck, even if interest rates go up I could lose 5% of my portfolio on safe old treasury bonds with a negative real yield.

As far as diversification, I'm not sure why you think it's so hard to have 1500 bonds. That's less than $40K at $25 a piece. I don't have 1500, but I've got 500 and that's far more than I'd prefer to manage to be honest. How many do you really need to be adequately diversified? I can't imagine it's more than 200 statistically.

So yes, perhaps if we have an economic crisis I will have a massive default in my portfolio and won't be able to sell any notes prior to the default. Define massive. 50% of people quit paying? That still leaves me with half the notes paying me 20%. At 20% a year it won't take long to make up for all those defaults.

I'm not saying everyone should get into peer to peer lending. But 10%+ returns seem pretty hard to find these days. It feels to me like picking up $20 bills. I just rolled over a little more IRA money and should be up to 5% of portfolio soon.
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Re: Google Invests $125 Million in Lending Club

Post by cb474 »

What I said was "equity-like" risk, not that there are actual equities involved. By that I mean with Lending Club you are taking on risk of losses and volatility that are more like what one experiences with equities than with the usual fixed incomes parts of a portfolio.

Normally the purpose of the fixed income part of a portfolio is to provide stability to the portfolio and reduce risk, not as a way to seek extra return. People get caught up in searching for yield as a source of income, because if feels safer to them. But they really should only be thinking about the total after tax return of their portfolio, not the putative "income" from one part of it. Because at the end of the day it's only the performance of the total portfolio taken entirely together that counts in terms of whether one is going to have enough money to live off of or not. Vanguard has a good, often quoted, paper on why people should think about total return, not interest income, when they're figuring out how to live off of their portfolio, which can be easily found by searching around. Other respected (in this forum) financial authors write about this as well.

So the question becomes what is the most efficient way to take risk in order to achieve a certain level of return that you can live off of. If you take risk in an inefficient manner (such as through Lending Club or junk bonds), what you are doing is getting less return for the amount of risk you have taken.

It has been well established that equity risk is the most efficient way to get return for your risk. In other words, equities provided the highest level of return (technically potential return) per amount of risk you have taken. So if you want more return and are willing to take more risk to get there, increasing the equity portion of a portfolio will give you the most additional return for the amount of risk you are taking. In this way, to accomplish the extra return you're getting through Lending Club, you could do so instead with equity risk and not have to dedicate as large an amount of your portfolio to accomplish the same end. You would end up with a less risky total portfolio with the same (potential) return.

These are all points which have been discussed many times in this forum and by the various financial authors who are most respected by forum members. In addition, the concept of the efficiency of risk has been discussed a great deal here and by these authors. If people aren't familiar with the concept of the efficiency of risk and how it effects their portfolio, it would be a good idea to learn about it.

So is it true, at the end of the day, that yields these days of safe bonds like treasuries are incredibly low? Yes. Is that frustrating? Yes. Unfortunately, it is what it is. We get the world as it is, not as we'd like it to be. Responding to this situation by chasing yield in things like junk bonds, high dividend equities, or Lending Club is a classic mistake, in which people are just misunderstanding the risks and don't know how to properly make an apples to apples comparison with the relative risks of equities.
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Re: Google Invests $125 Million in Lending Club

Post by White Coat Investor »

I agree with almost everything you've said and have participated in your referenced discussions for years. What I don't agree with, however, is that P2P Lending is somehow the same asset class as the bonds used in the studies you referenced and the discussions previously had on this forum. Is it really less efficient (not talking about taxes here) to get your return from P2P loans than from equities? I don't think we actually know that, and doubt there is enough data out there to show it anyway given how new the whole P2P Lending thing is.

It's quite possible I'm taking more risk in P2P lending than I am in my equities (thus the higher returns). It's also possible there is a free lunch there because people like you are too scared of them to drive the yields down to where they should be given the level of risk. I don't know. But I'm willing to bet a few thousand that my second statement is more accurate than my first. You're apparently not. That's okay...many roads to Dublin and all that. This will be a very interesting discussion to resume in the depths of our next bear.
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Re: Google Invests $125 Million in Lending Club

Post by chw »

EmergDoc wrote:I agree with almost everything you've said and have participated in your referenced discussions for years. What I don't agree with, however, is that P2P Lending is somehow the same asset class as the bonds used in the studies you referenced and the discussions previously had on this forum. Is it really less efficient (not talking about taxes here) to get your return from P2P loans than from equities? I don't think we actually know that, and doubt there is enough data out there to show it anyway given how new the whole P2P Lending thing is.

It's quite possible I'm taking more risk in P2P lending than I am in my equities (thus the higher returns). It's also possible there is a free lunch there because people like you are too scared of them to drive the yields down to where they should be given the level of risk. I don't know. But I'm willing to bet a few thousand that my second statement is more accurate than my first. You're apparently not. That's okay...many roads to Dublin and all that. This will be a very interesting discussion to resume in the depths of our next bear.
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Re: Google Invests $125 Million in Lending Club

Post by cb474 »

EmergDoc wrote:I agree with almost everything you've said and have participated in your referenced discussions for years. What I don't agree with, however, is that P2P Lending is somehow the same asset class as the bonds used in the studies you referenced and the discussions previously had on this forum. Is it really less efficient (not talking about taxes here) to get your return from P2P loans than from equities? I don't think we actually know that, and doubt there is enough data out there to show it anyway given how new the whole P2P Lending thing is.

It's quite possible I'm taking more risk in P2P lending than I am in my equities (thus the higher returns). It's also possible there is a free lunch there because people like you are too scared of them to drive the yields down to where they should be given the level of risk. I don't know. But I'm willing to bet a few thousand that my second statement is more accurate than my first. You're apparently not. That's okay...many roads to Dublin and all that. This will be a very interesting discussion to resume in the depths of our next bear.
1) I think the question is: When an financial crisis of some sort hits, how is the default rate on the loans going to hold up? You're assuming that the way things are going now, when things are relatively stable, is how it will always be. But it will be in a crisis that one wants one's fixed income allocation to provide safety and protection of principle.

2) This leads to my second point, which is, as you note, that people really don't know what the risks of these loans are, because they haven't been around long. So your assumption that Lending Club notes cannot reasonably be compared to junk bonds or high dividend equities is just that, an assumption with zero evidence. If that's not gambling, I don't know what is. And gambling is certainly not the point of one's fixed income allocation.

3) I was not saying Lending Club notes are the same asset class as junk bonds or high dividend equities. I was simply saying that they are similar in that people may be attracted to them for the higher yields, while at the same time discounting or not understanding the risks. There is no magical safe (treasury, investment grade) bond like thing that provides equity like returns.

4) The problem with Lending Club is that the risk you're taking is one of default. In a crisis could there be a scenario where all or almost all of your loans default in short order? There is no reason to assume that the worse loss you could have is 50% default, as you do in an earlier post. And in the case of an 80 or 100% default rate, you're not going to earn your money back quickly with 20% returns, as you also suggest above, since all the principle you had in Lending Club is gone--there's nothing or to little left to earn your return on. In contrast, even in equity market crashes, the market tends to eventually come back, if you hold onto your shares (in an index fund, of course). But default is default. There's no coming back from that. I think it's naive to play down the nature of that risk.

5) If there really was a free lunch here people and institutions much more sophisticated than you or I would be all over this. Lending Club has already generated over a billions dollars in loans. It's getting all kinds of news coverage and buzz. Do you really think the market makers don't know what's going on there? Do you really think there are no clever hedge fund managers eager to eat a free lunch? With all due respect, I find it patently absurd that the interest rates you're earning represent a free lunch. It is far more probable that, as normal, they represent the very large level of risk of default on these loans. Even Greece doesn't have to pay 15%. And in fact, it's my understanding that there are already a lot of professional investors in Lending Club. So we probably should assume whatever free lunch there might once have been has long ago been arbitraged away. All the more reason to conclude that the 15% rate reflects the real level of risk.

6) At the end of the day, why aren't the clever people who created Lending Club just putting their money in these loans and "picking up $20 bills," as you say in an earlier post, with that 15% rate of return? Why are they so generously sharing the wealth with you, if the risk is minimal and equivalent to treasuries or investment grade bonds? Why do they prefer the 2% to 6% fees they get for originating loans, instead of the much higher 15% rate they could get for making the loans themselves? As usual, the money in financial products is in the fees. Lending Club gets fees for helping generate these loans and they make money whether the loans eventually default or not. They make money whether or not you do and that's usually the position that the sophisitacted financial players like to put themselves in. Collect the fees, let others take the risk. This is an old story in a new guise.

7) So again, I say, lets wait until whatever the next crisis is and then see how money invested in Lending Club notes fares. That will be the real test. And why anyone would want to entrust any portion of their fixed income allocation to that kind of uncertainty I don't know.
Last edited by cb474 on Sun May 12, 2013 5:56 am, edited 8 times in total.
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Re: Google Invests $125 Million in Lending Club

Post by cb474 »

So, for what it's worth, I searched around a bit and found this Wall Street Journal article from a month ago discussing the risks of Lending Club and the fact that there are already a lot of professional investors in Lending Club.

http://online.wsj.com/article/SB1000142 ... 36034.html

Amongst other things, they have the following remark from a financial advisor:
Mr. Jordan, the wealth manager, says most clients look at peer-to-peer as an alternative to junk-bond funds. But unlike high-yield bonds, which sometimes recover some money in the event of a default, Prosper and Lending Club loans offer investors almost no chance of recovery.
It's not exactly reassuring to have Lending Clubs loans compared unfavorably to junk bonds. Unfortunately, the article also suggests that it might be okay to invest a small amount of one's fixed income allocation in Lending Club. I obviously think that's a mistake for the reasons I state above. If you want to take more risk, take it in equities. And certainly any money in Lending Club (even though I think it's a mistake) should be considered part of one's equity allocation, not part of one's fixed income allocation. Actually, I really think any money in Lending Club should be considered more like part of one's fun money, like people who reserve a tiny part of their portfolio for stock picking, because they just can't resist. Since, I think, the risk of losing your shirt with money in Lending Club notes is much greater than risks with the usual sort of passive equity index funds used by people here and much more akin to stock picking.

*

I also posted a comment on a recent article by Larry Swedroe about chasing yield in high dividend equities to get his opinion on my thoughts about Lending Club, in case I'm totally missing something. The article is here: http://www.cbsnews.com/8301-505123_162- ... end-yield/

Larry responds to my comment asking about Lending Club:
CB
The most basic concept in all of finance is that risk and EXPECTED return are related. Thus,

First, if you are getting a higher YIELD (not return) than you are taking more risk, EVEN IF YOU CANNOT SEE IT.

Second, clearly these loans are more risky.

Third, clearly these loans aren't liquid--like say a bond fund or an investment in individual high quality bonds or CDs. Thus you should receive a liquidity premium.

Fourth, as you note, assets that do poorly in bad times should carry LARGE risk premiums, they are not free lunches. The reverse of this is why Treasuries have low yields---they tend to do very well in bad times

Fifth, we don't have a long data series to evaluate the risks and my guess is that you are right about the future losses.

I hope that is helpful
Larry
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