Lending Club’s Investor Returns Squeeze

Lending Club updated their interest rates earlier this week. In addition, they published the expected charge off rates per grade. Using the new interest rates, expected charge off rates, and loan grade distribution, we observe the following:

  • The biggest investor squeeze measured by relative difference (Net Return Difference versus Previous Investor Net Return), A and B loans have the largest impact.
  • Consistently, the investor squeeze affects grades A through F.
  • Accounting with the origination distribution volume, the weighted investor net return impact is -0.37%. The platform’s weighted expected return is now at 7.10%, down from 7.46% per year.
  • The investor squeeze theoretically will increase borrower demand due to lower rates, but it may also be a necessary move given the increasingly competitive refinancing options in the markets today (0% APR credit cards, competitor lending marketplaces, improving FICO scores).

From our perspective, if you invest using a taxable account and do not optimize and diversify your portfolio by focusing on a higher risk loans, the net returns may be inefficient. That’s where Lending Alpha’s services shine by generating higher net returns and a more efficient investor returns profile that makes this asset class a worthy consideration when evaluating where to invest your money.