Shares of online peer-to-peer lending company LendingClub Corp (NYSE:LC) opened sharply lower today after the company reported its first quarter earnings along with the news that its Founder and CEO, Renaud Laplanche, has resigned. Mr. Laplanche’s departure comes after an internal review by the company found that sales of $22 million in near-prime loans were made to a single investor in violation of the company’s lending practices and against the investor’s “express instructions.” Although the company didn’t disclose what role Mr. Laplanche played in the loan sales, it revealed, “certain personnel apparently were aware that the sale did not meet the investor’s criteria.”
According to the company, the internal review began after it found out that application dates on $3 million of the $22 million loans that were sold to the investor were changed to make them comply. Following this discovery, LendingClub hired an outside expert firm to review all other loans that it facilitated during the first quarter of 2016, but found no changes in data of those loans. However, its internal review did uncover another unrelated matter, ” involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund.”
Since the $22 million near-prime loans in question made up less than 0.6% of the company’s quarterly turnover during the first quarter, its impact on LendingClub Corp’s first quarter numbers was marginal. The company was unable to recognize $150,000 in revenue related to gains on sales of these loans as of March 31, 2016. “While the financial impact of this $22 million in loan sales was minor, a violation of the Company’s business practices along with a lack of full disclosure during the review was unacceptable to the board. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues,” Hans Morris, an independent director on the LendingClub Corp’s board since 2013 who has been named as the company’s new executive chairman, said. Following Mr. Laplanche’s departure, the company’s president, Scott Sanborn, has been made the acting CEO of the company.
Shares of LendingClub Corp were listed on the New York Stock Exchange with much fanfare in December 2014. However, after the initial spike following the IPO, they started a slow and steady decline, which has continued to this day. Taking into account today’s decline, the company has lost over 65% of its market capitalization since getting listed and its stock is trading down over 80% from the high it made in December 2014.
For its fiscal 2016 first quarter, LendingClub Corp reported EPS of $0.05 on revenue of $151.30 million versus analysts’ expectations of EPS of $0.05 on revenue of $148.20. For the same quarter of the previous financial year, the company had reported EPS of $0.02 on revenue of $81 million. Following the earnings release and the resignation of its CEO, several analysts have downgraded LendingClub Corp’s stock in the last few hours, including analysts at Stifel Nicolaus, who lowered their rating to ‘Hold’ from ‘Buy’