Community Bank Group Suspends LendingClub Purchases
May 12 2016 - 5:30PM
Dow Jones News
A consortium of 200 small banks has temporarily suspended a
program of loan purchases from LendingClub Corp. as the banks
review the events that led to the ouster of the online lender's
chief executive, Renaud Laplanche.
The program, which brought together community banks across the
country with the decade-old San Francisco company, has been
suspended since Monday, according to Leland Merrill, a board member
of BancAlliance and an executive at Newport, R.I.-based
BankNewport.
LendingClub said Monday morning that Mr. Laplanche resigned
after the board found the company had altered dates on loans that
were sold to Jefferies Group. The company said it repurchased the
loans and sold them at par to an undisclosed third party.
The announcement has forced some buyers of LendingClub loans to
review their procedures for buying off LendingClub's online
platform. Goldman Sachs Group Inc. and Jefferies LLC have also
stopped their buying of the company's loans, according to a Wall
Street Journal report Tuesday.
BancAlliance entered into the program with LendingClub last
year. In the deal, the alliance facilitates purchases by community
banks of LendingClub loans. Since then, BancAlliance members have
purchased around $200 million of loans from LendingClub, according
to Mr. Merrill.
BancAlliance can suspend the program or terminate it if it
determines it can no longer recommend LendingClub loans to its
members. Member banks would be free to establish independent
relationships with LendingClub but would lose the advantages of
scale and collective negotiation it gets from operating as a
group.
If BankAlliance does decide to continue the program, individual
banks will also have to make their own determinations about whether
to keep buying loans from LendingClub.
BankNewport is one of the largest purchasers under the program,
with a portfolio of $25 million of LendingClub loans. On the first
business day of each month, it places an order for new loans,
typically around $1 million to $1.5 million, to replace loan
principal as it is paid down.
It also makes some additional purchases of loans made by
LendingClub to BankNewport customers. BankNewport executives said
it is more cost-effective to have LendingClub originate the loans
than for the bank to underwrite them.
"They have a scale we don't have here," Mr. Merrill said.
Banks are a significant source of funds for LendingClub. In
February, Mr. Laplanche said banks provide about 25% of the capital
for LendingClub loans. In the first quarter, that amount grew to
more than one-third, as LendingClub funding from banks stood at
$947 million, more than double the amount in the first quarter of
2015.
Kearny Financial Corp., the holding company for New Jersey-based
BancAlliance member Kearny Bank, had $21.4 million in
LendingClub-originated loans on its books as of March 31, according
to the company's quarterly report. The bank has said it plans to
limit its LendingClub portfolio to $25 million for now. Craig
Montanaro, Kearny's chief executive, couldn't immediately be
reached for comment.
BancAlliance plays a central role in LendingClub's relationship
with its community bank members. It is managed by Alliance
Partners, an SEC-registered investment adviser that acts as asset
manager for the consortium.
Alliance Partners specified the criteria for the loans that its
members purchase and oversees LendingClub's compliance with those
criteria.
BankNewport says it occasionally tests a sample of the loans to
monitor their quality but that most of the oversight is done by
AlliancePartners. Bank executives said they haven't reviewed
previously purchased loans based on Mr. Laplanche's departure
Monday.
Alliance Partners has communicated frequently with LendingClub
this week and has been providing updates to its members, a person
with knowledge of the situation said. Because BankNewport buys
loans on the first of each month, the suspension of the
BancAlliance program won't have any practical effect for it until
June 1. Executives at the bank said they expect the program will be
restored before that point.
--Michael Rapoport contributed to this article
Write to John Carney at john.carney@wsj.com
(END) Dow Jones Newswires
May 12, 2016 17:15 ET (21:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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