LendingClub becomes first fintech to buy a US regulated bank
LendingClub, a San Francisco-based peer-to-peer (P2P) lending firm, has become the first fintech to buy a US regulated bank following the $185 million acquisition of Radius Bank.
Paying in cash and stock for the purchase, the fintech subsumes a federally-regulated institution with the ability to accept consumer deposits.
Founded in 2006, LendingClub had the biggest US tech IPO of 2014 with a $8.5 billion valuation. But since founder Renaud Laplanche was pushed out of the firm by its board in 2016 due to problems with its lending practice, the fintech has never full recovered its 2014 status.
Documents issued by LendingClub say the deal will give it the ability to offer new products, diversify its earnings and reduce – or eventually eliminate – its reliance on funding rounds. CEO Scott Sanborn says the deal “will dramatically enhance the resilience and earnings trajectory of our business”.
Sanborn says the deal will help save the lender $40 million a year in bank fees and funding costs, as well as allow it to earn a spread on loans for its balance sheet.
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“What a bank charter does for LendingClub is it allows us to take what is the leading digital loan provider online and combine it with a leading digital deposit gatherer,” Sanborn tells CNBC. “It totally changes the earnings profile of this business.”
Commenting on the acquisition decision, 11:FS’s managing partner for North America Sam Maule says “$185 million is not a ton of money for what [the lender is] doing”. “My advice to LendingClub right now is to stay on the lending side of things. You can hold both sides of the table because you’re holding deposits,” Maule concludes.
Radius’ President and CEO Mike Butler says the bank’s reason for being bought up comes down to resources. “We are excited for our employees to operate our virtual banking platform with more resources and for our clients to gain access to an industry-leading lending product,” says Butler. “This is a perfect marriage.”
Taking 12-15 months to go through, the acquisition is expected to break even for LendingClub two years after that. The fintech’s largest shareholder, Asian investment firm Shanda, will also trade its 22% stake in LendingClub for nonvoting shares.
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