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Lending Club shares surge on brighter earnings 10.05.

18, 08(57

fastFT LendingClub Corp

Lending Club shares surge on brighter earnings

Ben McLannahan in New York YESTERDAY

Shares in Lending Club roared higher on Wednesday as investors warmed to brighter first-quarter
results — and the advent of an activist shareholder who called for big cost-cuts and much higher
capital returns.

By around 1pm in New York the stock was up about 25 per cent on the day, on course for its biggest
daily gain in its three-and-a-half years as a public company.

After market close on Tuesday, the San Francisco-based company reported a 22 per cent rise in
revenues from a year earlier to $152m, after an 18 per cent bump in originations to $2.3bn.
Adjusted earnings before interest, tax, depreciation and amortisation came to $15.3m for the
period, above the top end of the company’s guidance.

Morgan Stanley analyst James Faucette described the results as “reassuring,” after a rocky couple
of years in which the company struggled to rebound from a governance scandal that prompted a
clear-out of senior managers, a rash of lawsuits and various regulatory probes.

Then came a disclosure on Wednesday from Quarz Capital Management, a Singapore-based


activist hedge fund, that it had taken a near-3 per cent stake in the company and written to
management to urge it tackle problems causing its “drastic undervaluation.”

Despite the brighter numbers on Tuesday, Lending Club still expects to lose money for a fifth year
in a row this year, thanks in large part to still-elevated legal expenses.

“We firmly believe that the severe loss of investors’ confidence in Lending Club relates to the firm’s
continuing lack of profitability despite its strong revenue generation and growth potential,” Quarz
said in its letter. “This has also resulted in investors’ underestimating the viability of the online
marketplace lending model despite peers proving the model’s sustainability and growth potential.”

Quarz noted that senior managers at Lending Club were paid more than $24m last year, despite
heavy losses — about double the equivalent payroll for a profitable group of mid-sized banks in the
US. The hedge fund also urged Lending Club to start a “comprehensive” share buyback
programme, noting net cash of $650m — about half the company’s market capitalisation — on its
balance sheet.

In a statement, Lending Club said: “We maintain an ongoing dialogue with our investors and
welcome their input and perspectives.”

Copyright The Financial Times Limited 2018. All rights reserved.

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