LendingClub Cutting 460 Staff in Response to Reduced Loan Volume

Back in October last year LendingClub executives ran an exercise where they had to game plan how the company would react to a pandemic. In hindsight, this was a very timely exercise that has helped the company react quickly in today’s unprecedented times.

They were one of the first fintech lenders to issue the work from home order as well as provide the ability for borrowers to self-serve when it comes to loan forbearance. Now, they are one of the first to announce a sweeping round of layoffs.

According to an 8-K filed by LendingClub today the company is laying off 460 people or around 30% of its workforce. A LendingClub spokesman told me that the cuts were across every division of the company as they are adjusting the size of the company to reflect a business environment that is dramatically different from just a couple of months ago.

The C-suite was not spared in the downsizing. Steve Allocca, president of LendingClub for the past three years, will be exiting the company on May 12 as his position has been eliminated for now. Also eliminated is the Chief Marketing Officer so Alexandra Shapiro, who had been in the role for less than a year, will be leaving. With no need to pursue growth marketing costs will be reduced substantially as many paid programs are put on pause.

Additionally, executives are taking a 25% pay cut with Scott Sanborn, CEO of LendingClub, taking a 30% cut. Sanborn said this in a statement:

It’s never easy to lose people who are not just colleagues, but teammates and friends. These are amazing, innovative, and committed people who have helped to build LendingClub into a great company. However, it was necessary to realign our staffing to the current business environment. With these actions, we believe we are well positioned to achieve our long-term strategic goals and better serve our members, who will need us more than ever, once the economy stabilizes.

Origination volumes have tumbled across the consumer lending industry as companies have pulled back in marketing and many institutional investors no longer adding in new capital. On this latter front LendingClub is fairly well positioned given it has worked so hard in recent years to diversify its funding sources. Interestingly, some funding sources have not declined, and some have even increased in volume. I was told that retail investment is actually up which I thought was interesting.

My Take

While initially shocking, it is not that surprising that LendingClub has made this move. With originations down they needed to cut costs and, while painful, a large round of layoffs is essential for any significant cost containment program. The company entered this crisis in a strong financial position with over $500 million in cash on their balance sheet at the end of Q4.

While I have been assured that completing the Radius acquisition is a top priority for the company, if the economic malaise continues for a long time I will be surprised if it stays on track. It is such a shame really, as I felt with this move LendingClub had turned a corner this year and was finally on offense after many years of defense. But now the name of the game is weathering this crisis as the whole world has hit the pause button.

You will be able to learn more on LendingClub’s next earnings call scheduled for May 5. We will be covering that here as usual.

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Kyle
Kyle
Apr. 21, 2020 4:05 pm

“It is such a shame really, as I felt with this move LendingClub had turned a corner this year and was finally on offense after many years of defense.”

You have to be kidding by saying that above.. the only thing “Shameful” was how they have treated investors in 6 states.
Pass me the Popcorn… I just knew it!

Kyle
Kyle
Apr. 25, 2020 1:23 pm
Reply to  Peter Renton

They haven’t even had the decency to even explain to an investor what the reason is for the exclusion. Including stating that it is actually a compliance issue.
No one has related that to me officially.
They handed us a $25 Amazon gift card and instructed the staff to say they are unaware as to the reason for the exclusions. THAT is what is “shameful” in my opinion.
I’m enjoying the popcorn though.

Michael R
Michael R
Apr. 21, 2020 4:15 pm

Peter — In response to stresses caused by the global pandemic, Lending Club recently eliminated D Grade loans, which were performing poorly. However, I called the other day and was told that they are not adjusting interest rates, which I thought would be warranted due to the increased risk environment. My feeling is that Lending Club is currently underprcing unsecured consumer debt, which could explain the flight of institutional investors. Can you comment? Thank you.

Everardo Trevino
Everardo Trevino
Apr. 22, 2020 9:40 am

Peter — based on my personal experience, the volume of loans being originated within the retail channel has decreased substantially over the past few weeks. With few exceptions, most batches of new loans (across the four publishing windows) feature 1-3 loans. Did the spokesperson clarify exactly what he/she meant by “retail investment is actually up”?