Loans company Lending Club narrows losses to $6.4m

Net losses at Lending Club, the biggest of the online lenders, narrowed more than analysts expected in the first quarter, easing concerns about the costs of maintaining the company's triple-digit growth rate in revenues.

The San Francisco-based lender, which went public in New York in December, said after the market closed on Tuesday that it lost $6.4m in the period, compared to a loss of $7.3m a year earlier. Analysts had expected a loss of about $8m.

While operating expenses rose 87 per cent from a year earlier to $87m, driven net revenues were 109 per cent higher, at $81m, as Lending Club banked more fees from a record $1.64bn in loans in the period, and from servicing its much bigger overall portfolio. It said that its revenues for the full year would be about $390m, up from an earlier projection of $375m.

Shares climbed about 4 per cent in after-hours trading, having fallen about 5 per cent during the day.

Lending Club chief executive and founder Renaud Laplanche told analysts the company's emphasis was on continued "deliberate" growth, saying that of the roughly $900bn in outstanding credit-card receivables across the US, about $390bn met the company's standards.

People switching balances to Lending Club - still the dominant use of its loans - were typically making big savings, he said. The company's investors charged consumers an average three-year interest rate of less than 12 per cent in the first quarter, much less than the average 17 per cent rate charged by the credit-card companies. "We are neither supply- nor demand-constrained," Mr Laplanche said.

Capital continues to flood in to the peer-to-peer, or online, lending industry, as investors chase higher yields in a world of near-zero interest rates on more traditional assets. Some of the biggest operators - which crunch reams of data to rapidly connect borrowers with investors - are valued in the billions of dollars and have begun to do deals with traditional banking-industry heavyweights such as Citigroup.

Yet fears have mounted about the cost of sustaining such rapid growth, and whether the online lenders - some of whom put their own balance sheets at risk, rather than acting as intermediaries - can preserve their margins amid increasingly fierce competition and rising delinquencies.

Shares in OnDeck Capital, a small-business lender which reported late on Monday, fell as much as 15 per cent on Tuesday as the company said that its effective interest rate on loans originated in the first quarter fell to 49 per cent from 60 per cent a year earlier.

"Industry-wide" declines in pricing are a symptom of "lots of capital coming in, chasing a small pool of borrowers", said Michael Tarkan, an analyst at Compass Point Research & Trading in Washington. "I don't think the whole business model changes in one quarter - this is an ongoing issue."

Analysts calculate that it is too early to tell whether these lower yields will be enough to offset rising credit costs, as the cycle begins to turn. At OnDeck, the proportion of balances that were more than 15 days past due rose 120 basis points from a year earlier to 8.4 per cent.

Its net loss was $5.3m for the quarter, compared to $14m a year earlier.

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