Lending Club Corp has raised borrowing rates in line with the Federal Reserve Bank's decision of a rate hike by quarter points. The company has raised rates twice since the Federal Reserve's rate hike. One was in December by 25bps and second was in January.
Lending Club was the first one in the peer-to-peer (P2P) industry to raise interest rates post the Federal Reserve's decision of a rate hike in January, which caused rates of high-quality loans weighed down 3bps, while rates of lower-quality loans surged nearly 67bps.
Last week, on February 19, the company raised the rates for its riskiest borrowers. The increase was able to pull up the rates, in comparison to January, by an average of 250bps as per investor presentation.
This made the P2P sector sensitive to lowered sentiments that surrounded the high-yield bond market and investment-grade sector, as per Bloomberg. The sector is expected to feel the pain when a bearish outlook exists for the marketplace. In such a case, there will be either an increase in defaults or a reduction in available funds as investors will be pulling back their investment.
While increasing borrowing rates soon after Federal Reserve's rate hike, CEO Renaud Laplanche expressed that "the value we deliver to our customers is not dependent on the absolute level of interest rates." In addition, Compass pointed out that it had lowered its rates in 2014 and the major part of 2015 to transfer the savings to its borrowers. However, Lending Club kept raising its rate since the Federal Reserve's decision, as the company is larger in size, with low cost operations and more technology-driven. This helps the company to pass on savings to its borrowers.
It is noteworthy that the club has adjusted its rates according to the market condition. Thus the increase in borrowing rates reflects the company's attempt to combat negative investor sentiment and make its product more attractive to investors.
Lending Club stock closed at $8.45 on Thursday. The stock fell nearly 22% year-to-date (YTD). As of 9:39 AM EST, the stock gained nearly 1% to $8.52 on Friday.