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LendingClub new CEO says investors are returning ... slowly

Scott Sanborn, LendingClub
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Scott Sanborn, LendingClub

LendingClub CEO Scott Sanborn, who was appointed to the post permanently Tuesday morning, told shareholders that debt investors are coming back to the platform, but they're taking their time.

Sanborn addressed the public for the first time since founder Renaud Laplanche was forced to resign as CEO in May due to the improper selling of certain loans to an investor and a conflict of interest with an outside fund. That announcement sent the stock into a tailspin and caused lenders who fund the online loans to put their commitments on hold.

Because of the pullback, originations in the second quarter are expected to drop by one-third from the prior quarter, Sanborn said at LendingClub's annual stockholders' meeting on Tuesday. But the company said that revenue and profit growth should resume in the first half of 2017.

"We need to support investors in their diligence process to bring them back to the platform," Sanborn said. "Banks are taking longer in general and have a longer list of diligence requirements."

A timeline of the LendingClub saga

April 11

LendingClub founder and CEO Renaud Laplanche delivers keynote address at annual LendIt conference in San Francisco. Stock was at $7.94, already down 28% for the year.

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Sanborn, who's worked at LendingClub for six years and was previously chief operating officer, has plenty of work ahead to repair LendingClub's standing. The company's stock price has plunged 70 percent in the past year, including a 35 percent drop on the day Laplanche was ousted. LendingClub said shortly after that decision that it's under review by the Securities and Exchange Commission and U.S. Department of Justice.

The stock rose 7.2 percent to $4.61 on Tuesday, after LendingClub said an independent committee's forensic review is "substantially complete." LendingClub also said in a filing ahead of the meeting that it's eliminating 179 jobs, about 12 percent of the company's workforce, as part of a cost-reduction strategy.

In the same filing, LendingClub said the review found another 32 loans issued to Laplanche and three family members in December 2009, totaling about $722,800 in originations and $25,000 in revenue. While all of the loans were eventually paid in full, LendingClub concluded that "these loans were issued in order to help increase reported platform loan volume for December 2009."

At the shareholder meeting, which was conducted virtually, investors sent in four questions. Hans Morris, who was just elevated from temporary executive chairman to permanent chairman of the board, was asked if it was the right decision to force out Laplanche and why Sanborn was chosen as his successor.

Sinking stock

He said Sanborn was the right choice because of his proven integrity, institutional knowledge and cultural fit at the company. And he said it was "unquestionably" the right call to remove Laplanche because the CEO of a financial services company must have "trust and accountability."

Investors asked Sanborn if new backers are coming onto the platform and why the company is raising interest rates. In response to the latter, he said higher rates are a function of the market and the need to make the asset more attractive to investors.

As for new investors, Sanborn gave the example of an asset manager that has gotten comfortable enough with LendingClub's progress to purchase $200 million in loans since May 9, and expects to invest $1 billion this year.

Sanborn said the company has talked to hundreds of investors in the past seven weeks, and "virtually all have said they want to continue working with LendingClub."

His overarching message: Be patient.