Amid losses, LendingClub presents long-term vision for its bank
LendingClub now has a banking charter, but it will likely take some time for its transition from an online lender to a full-service digital bank to turn a profit.
The San Francisco-based company said on Wednesday it expects to report a net loss of at least $ 175 million this year, mostly related to accounting issues, but also due to around $ 20 million in one-time costs related to it. upon its acquisition of Radius Bancorp.
The recently completed purchase the numbers are expected to be transformative for LendingClub – it is expected to dramatically reduce the company’s cost of funds while enabling the development of a full range of retail banking products – but the timeline for realizing a gain remains unclear.
During the company’s fourth-quarter earnings call on Wednesday, executives at LendingClub declined to give any guidance on when the $ 1.9 billion asset company will reach profitability. LendingClub reported net losses totaling over $ 300 million between 2018 and 2020, including $ 26.7 million in the last quarter of last year.
Still, company executives have provided optimistic long-term forecasts for LendingClub Bank, which they have described as the country’s leading digital market bank and have promised to grow quickly.
They noted that American consumers increasingly prefer to transact online, especially in light of the pandemic. “It’s really hard to imagine a better time to start a digital bank,” said CEO Scott Sanborn.
Sanborn pointed to research that found that 81% of the company’s existing customers are interested in a LendingClub checking account. Consumers who borrow from LendingClub often refinance more expensive credit card debt into a personal loan. LendingClub plans to offer more banking products to these existing customers.
“They are among the most profitable clients of retail banking. It works better for banks than it does for them, ”said Sanborn.
LendingClub’s new business plan combines elements of traditional banking with aspects of its old model of market lending, in which the company matched borrowers with lenders and collected set-up fees.
Under the new model, LendingClub Bank plans to keep 15-25% of loans issued on the company’s online platform, with the remaining 75-85% to be sold in the market.
Loans held by LendingClub Bank will incur certain upfront accounting fees. But over a two-year period, they will produce better economic results than the loans sold in the market, the company said.
With the acquisition of Radius, LendingClub added a $ 2 billion online deposit franchise, and the company said on Wednesday that it plans to cut its financing costs by around $ 30 million for every $ 1 billion. deposits. LendingClub also plans to eliminate the fees it previously paid banks to create its loans; these costs have averaged about $ 20 million per year.
In 2021, LendingClub projects a 45% year-over-year increase in loan origination and a 55% increase in year-over-year revenue. The company’s revenues plunged in 2020 as the pandemic-induced recession sharply reduced new loans.
“Our goal here is to build a high-growth, high-profit machine that generates truly sustainable growth over a period of years,” said Sanborn.