John Mack, the former chairman and chief executive of Morgan Stanley, is to join the board of a peer-to-peer lending company that aims to bypass banks and extend credit directly to borrowers through the internet.
Mr Mack, once dubbed Mack the Knife for slashing costs during his time at the investment bank, will add a position on the board of Lending Club to his growing portfolio of non-executive appointments. He joined buyout group KKR last month and acts as senior adviser to China Investment Corp.
Lending Club is one of a crop of fast-growing peer-to-peer companies, which seek to match lenders directly to borrowers. The web-based club says it has lent $589m since it opened in 2007 with a Facebook-based lending platform and generated $51m of interest for investors.
“Lending Club has created an innovative platform that provides investors with low-cost access to high-quality consumer credit assets and at the same time makes credit more affordable to consumers,” Mr Mack, whose storied career on Wall Street spanned four decades, said in a statement.
US bank lending has remained sluggish since the financial crisis, which led to the failure of numerous smaller lenders and the bailout of Wall Street groups including Morgan Stanley. Mr Mack was replaced by James Gorman as chief executive at the start of 2010, but retains an honorary title at the bank.
Mr Mack said in an interview that he learnt of Lending Club through Mary Meeker, the prominent internet analyst at Morgan Stanley during the boom era of the dotcom bubble. She now works as a partner at venture capital firm Kleiner Perkins. “Technology is something I want to get more involved in,” Mr Mack said.
The nascent peer-to-peer lending industry seeks to exploit two emerging trends in the finance industry: bank “disintermediation” and the growing importance of technology. Traditional banks are also seeking to harness technology by rolling out mobile and tablet platforms.
“Alongside the disintermediation of lending, which we can see across banking, peer-to-peer lending is definitely growing in importance,” said David Renz, a director at SunGard Financial Systems, which provides software for banks. “The great attraction of using the internet is that someone at one end of the country can lend to someone at the other end of the country without having to meet them.”
First launched in the UK in 2005, peer-to-peer lending has also grown as individuals and small businesses seek alternative sources of finance to big banks. While the US has a broader non-bank market for corporate borrowing, bank lending is still the biggest provider of such credit in Europe.
Lending volumes in the most developed market are still small, however. Research by the Financial Times found that UK groups are expecting to provide up to £200m this year, a fraction of overall bank lending. But the biggest operators are aiming to triple their lending volumes over the next 12 months.
The US market opened up in 2006 with the launch of Prosper. Lending Club followed shortly in 2007. Together these companies have lent a total of almost $1bn in the past six years. The peer-to-peer model is also gaining traction in Germany and China, which has an estimated 100 lending sites.
In addition to his financial-related commitments, Mr Mack sits on the board of Corinthian Ophthalmic, a medical device company, and is chairman of the New York Presbyterian Hospital’s board of trustees.
Investors are increasingly turning to peer-to-peer lenders as they search for higher returns. Lending on these sites provides an average yield of about 8 per cent, although defaults would be deducted from this.
At the Lending Club, Mr Mack said, lenders could receive about 6 per cent for the highest-quality loans with two or three-year durations, trumping the returns they would receive for investing in securities such as US Treasuries. He said the loans could be attractive for financial advisers to sell to their clients.
Renaud Laplanche, Lending Club chief executive, said in a statement: “We are thrilled to welcome John to our board. John has an unparalleled record building financial firms; his inspirational leadership and wealth of experience will help propel Lending Club to the next phase of our evolution.”
Mr Mack, 67, said he was interested in taking on perhaps one more boardroom challenge. “I don’t want to play golf every day,” he said.