The Wall Street Journal is reporting today on a potential $5 billion investment into Prosper loans. This deal has not closed yet but if it does close it would be largest investment commitment in the history of the marketplace lending industry.
I reached out to Prosper but unfortunately they would not comment on this story. It is understandable given the fact that this deal has not closed yet and according to the WSJ that milestone could still be weeks away.
So, let’s take a look at what we do know, at least according to the WSJ. The firms in this deal, Soros Fund Management, Fortress Investment Group, Third Point and Jefferies are some of the biggest names and most sophisticated firms on Wall Street. We know the deal is for $5 billion and we can assume it includes leverage given that the “potential buyers are also talking to banks about borrowing money to support their loan purchases.” We also know that the loans will be bought at face value and the investors will receive an equity kicker as they buy loans on the Prosper platform.
The slowdown in marketplace lending this year has been as dramatic as it was unexpected. A deal like this is a real game changer. It helps everybody. It certainly helps Prosper, but I would argue it helps Lending Club and every other platform as well. Suddenly, big deals that were becoming the norm last year are back on the table. Now, investors who have been on the fence may start to develop more trust and be willing to pull the trigger on new deals too.
There have been so many negative stories in the press over the last few months, some even predicting the death of our industry. Assuming this deal closes I expect the narrative to begin to change. This industry is not going away but I also don’t think we will ever go back to the crazy fast growth of previous years. We have learned our lessons and the key to moving forward is sustainable growth along with strong compliance.
There was another little nugget of news from the WSJ article that was overshadowed by the big announcement. The fact that another large bank, BBVA Compass, is now buying loans on the Prosper platform. That was news to me and certainly another positive sign for Prosper and one that demonstrates the level of trust in their organization.
A few years from now there is no doubt in my mind that we will look back on 2016 as a challenging year. We have taken several steps backward to be sure but if this deal gets done we may also look back and say that was the turning point. That was when we started to get back on track.
I never doubted the industry would survive and thrive once again. We have a long way to go but the biggest deal ever would be a heck of a first step back.
You do not want to be on the other side of the table against the likes of Fortress, Soros and Third Point when they have most of the negotiating leverage. I ‘d bet they are exacting a pound of flesh from Prosper (beyond warrants) and Prosper is willingly taking it to keep the lights on. That being said…I love your optimism Peter.
Well my optimism has been tested these past few months so I appreciated having some good news to write about. And yes, we those investors no doubt drove a hard bargain. Will be interesting to learn more once it closes.
Interesting comment from Observer and I tend to agree.
I’m holding pat now with Prosper and LC until things settle down. Not sure when that will be but I expect it will be some time.
I am hoping this marks the beginning of the “settle down” period.
I am not quite sure how deep all of these firms look into how Prosper originates the loans. They advertise and brag they can do it cheaper than the banks. Common sense is being lost here- the reason they can do it cheaper is by hiring less qualified talent, like workers at Macy’, Home depot, to verify ID documents, verify income, and do all of the manual verification points that automation does not allow. I hate to be the mom and pop investor that buys this garbage, especially in the next downturn, we do hear that the DQ’s are sky high. This sounds a bit familiar to the housing crash…………..go figure. In addition, look at what they are reporting for fraud losses on their platform, it is at beyond historic lows. Common sense once again- they are underreporting and under verifying the fraud that happens on their platform since they are eligible to buy the loans back…………food for thought and don’t say I did not warn you ………….I am framing this comment and look back in 5 years to see what we learn ……….
General, You make some pretty sweeping claims here without backing yourself up with actual data. Prosper has been in business for 10 1/2 years, if it really was as bad as you make out here they would have been out of business a long time ago.
I started pulling cash out of Lending Club the minute I heard Larry Summers was joining the board. It’s been almost two years and I’ll be relieved when it’s all out. BIG Mistake, LC!
Hi Robert,
Lending Club has certainly made some mistakes although adding Larry Summers to the board is generally not considered to be one of them. Although I do realize many people have very strong opinions about him.