US-based Lending Club, the world’s biggest online lender, made its New York stock market debut today, marking a milestone for the fast growing sector as it looks to raise its challenge to traditional banking.
The online platform, which specialises in matching and connecting lenders with borrowers – ‘peer-to-peer’ lending – had its initial public offering (IPO) priced at $15 a share, valuing the company at $5.4bn. Shortly after its debut the San Francisco-based lender’s shares had soared 67%, valuing it at nearly $9bn. The shares opened at $24.75 and touched a high of $25.4 in early action.
The IPO looked to raise $870m, with the proceeds destined for repayment of debt and general corporate purposes.
Demand for Lending Club’s IPO was buoyant. The FT notes that the $15/share initial offer, unveiled late yesterday, was more than the $12 to $14 a share range set out earlier this week. And that range itself was raised from the $10 to $12 a share indicated at the beginning of this month when Lending Club began its road show.
Flotation will bring more P2P lenders to the market
The successful flotation is certain to encourage more peer-to-peer lenders to seek listing.
On Deck Capital, an online lender focused on small business loans, is just one of the sector players looking to follow in Lending Club’s footsteps. It is expected to begin trading in New York next Wednesday, raising $180m.
On Deck’s offer price is expected to range between $16 and $18 per share, raising $154m at the mid-point of the range, and potentially valuing it at as much as $1.2bn at the upper end.
Lending Club bills itself as “America’s number one credit marketplace… we operate at a lower cost than traditional bank loans and pass the savings on to borrowers in the form of lower rates, and to investors in the form of solid returns.”
The company, which opened for business in 2007, claims it can provide borrowers “with average savings of 30% on their interest rates, and investors with steady, strong returns”.
Critical to its success has been the use of technology to match borrowers to lenders much more efficiently and transparently than has been the case with traditional banks and institutions. It is this expertise, says Lending Club, that helps it lower the cost of credit, with savings passed back in the form of lower rates for borrowers and “solid returns” for investors.
In practice, customers interested in a loan complete an application at LendingClub.com. The company then evaluates the information (with no impact on the applicant’s credit score), determines an interest rate, and instantly presents a variety of offers to qualified borrowers. At the supply end, investors ranging from individuals to institutions select loans in which to invest, earning monthly returns. The entire process is carried out online.
High profile Lending Club board members stand to win big
The increase in Lending Club’s offer price to $15 alone over the last month will certainly cheer some of its high-profile board members, including Lawrence Summers, the former US Treasury Secretary. At that price his stake was valued at $15m. John Mack, the former chairman and chief executive of Morgan Stanley, another board member, saw his shares valued at $36m.
Lending Club founder and chief executive Renaud Laplanche, meanwhile, was looking at his 14.9 million shares – around 4% of the company – being valued at more than $220m at the IPO price.
Laplanche has said that the Lending Club concept grew from a “disruptive idea” back in 2006. Since its launch, the platform has overseen or “originated” more than $6bn in loans.
According to Reuters, the lender’s shareholders include Norwest Venture Partners, Foundation Capital LP, Morgenthaler Venture Partners, and Canaan LP.
Lending Club reported net loss of $23.9m for the nine months to September versus a profit of $4.4m a year earlier. Revenue more than doubled to $143m over the period.