Lending Club boosted by Chinese investor

Shanda takes leading stake in online lender hit by loan mis-selling scandal

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Shanda, the Chinese investment group, has emerged as the largest shareholder in Lending Club, the online lender reeling from a loan mis-selling scandal and the departure of its charismatic founder.

Shares in the San Francisco-based company, a pioneer in matching borrowers with investors over an online platform, collapsed two weeks ago after an internal company investigation found it had falsified documentation when selling a small package of loans to an investor. That announcement — which prompted the departure of Renaud Laplanche, the chief executive who founded the company a decade ago — was followed by disclosures of probes by the US Department of Justice and New York’s Department of Financial Services.

But on Monday Lending Club shares bounced about 8 per cent, as Shanda disclosed in a regulatory filing that it had increased its stake from about 7 per cent to 11.7 per cent, with options to buy another 4.1 per cent. Lending Club now has a market capitalisation of about $1.66bn, down about 80 per cent from its peak.

The ructions at Lending Club come at a critical time for the industry, which has hit a wall after years of rapid growth. As regulation tightens, and as losses have started to rise on some of the lowest-rated assets, some institutional investors such as banks and hedge funds have begun to turn up their noses at the risk-adjusted returns on offer. That means that the online lenders, which as non-banks cannot rely on deposits to fund loans, have had to scramble to find stable sources of long-term capital.

Prosper Marketplace and Avant, which like Lending Club deal in unsecured consumer loans, have laid off staff and paused expansion plans in response to slowdowns in their core units.

Scott Sanborn, a former head of marketing promoted to acting chief executive of Lending Club, has spent much of the past two weeks talking to big buyers of the platform’s loans, trying to persuade them to stick with their programmes. When it presented first-quarter results two weeks ago, Lending Club withdrew its revenue guidance for the full year, saying it needed more time to assess the impact of its disclosures.

In a statement, Shanda said it had increased its stake in Lending Club because of its desire to invest in industries with “a large-scale and long-term, sustainable growth potential”.

Lending Club said it had been in discussions with Shanda on its investment, and looked forward “to a continued dialogue”.

Shanda founder Tianqiao Chen, 43, was a pioneer in China’s online games industry through Shanda Interactive, and has diversified into payments, real estate and venture capital. In April Shanda bought a 10 per cent stake in Legg Mason, the Baltimore-based asset manager.

According to its filing, Shanda spent $149m on 29m shares in Lending Club, including commissions, and $11m on options to buy another 15.7m shares. If exercised fully, Shanda’s stake could rise to 15.8 per cent — meaning it was pulling ahead as the company’s biggest holder, in front of venture firm Sands Capital, with 10 per cent, and Baillie Gifford, the Edinburgh-based fund manager, with 9 per cent. Morgan Stanley, which led the company’s initial public offering in December 2014, also holds a 9 per cent stake.

Shanda has not indicated a desire to take a board seat, according to a person familiar with the situation.

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