The stock price of LendingClub Corp (NYSE:LC) plummeted after disclosing that its internal review discovered anomalies related to the sale of loans and a failure to disclose a personal interest in an investment fund.
The anomalies prompted its founder, Chairman and CEO Renaud Leplanche to resign from his position.
The shares of LendingClub was trading $5.26 each, down by more than 26% at the time of this writing, around 12:43 in the afternoon in New York.
LendingClub key principle
In a statement, Hans Morris, the newly appointed Executive Chairman of Lending Club, said, “A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees.”
The company’s internal review found $22 million of sales in near-prime loans to a single investor in March and April. The transaction is a violation of LendingClub’s business practices.
Morris said the transaction along with a lack of full disclosure during the review was “unacceptable to the Board” He added, “The Board took swift and decisive action, and authorized additional remedial steps to rectify these issues.”
In an interview with Bloomberg, Cormac Leech, a senior analyst at Liberum Capital, commented, “LendingClub is the bellwether in the industry when it comes to best practices, so investors are going to assume that this could be pervasive at second- and third-tier platforms, too. Investors won’t give the industry the benefit of the doubt.”
LendingClub first-quarter results
Scott Sanborn will continue to serve President of LendingClub. He will take additional managerial responsibilities as he would assume the role of acting CEO.
“As our first quarter results demonstrate, LendingClub’s business was strong despite the increasingly challenging investor environment. I will work closely with our valued borrowers, investors, and business partners to drive the continued success of LendingClub, and I am excited to be leading this exemplary team,” said Sanborn.
LendingClub reported a 68% increase in loan originations to $2.75 billion during the first quarter. Its operating revenue was $151.3 million, up 87% from $81 million in the same period a year ago. Its adjusted EBITDA increased 137% from $10.6 million to $25.2 million and net income rose to $4.1 million from a net loss of $6.4 million.
The company’s adjusted earnings were $0.05 per share compared with $0.02 per share in the same period last year. It ended the quarter with $868 million cash, cash equivalents and securities.