Search Results for: lendingclub

LendingClub IPO for P2P Loan Investors: First Day of Trading Over

(Updated. Lending Club ended their first day of trading at $23.43 a share, up 57% from their IPO price. With roughly 361 million outstanding shares, LC is roughly a $8.5 billion dollar company! I have updated the post to include the rest of the IPO documents and process. I ended up selling my 100 shares for roughly a $800 gain during the first day of trading. Details and rationale below.)

LendingClub connects individual borrowers with individual lenders, and I’ve been writing about them since 2007. They successfully had their IPO on Thursday, December 11th, 2014 and they actually set aside a few shares for individual investors. Usually you’d either need serious cash or insider access. If you were an investor at LC by 9/30/14 you should have gotten an e-mail asking if you were interested.

I participated in this IPO for a few reasons:

  • I’ve been a lender on LendingClub since 2007 and have been following their progress since.
  • I have never participated in an IPO before, and am curious about the process.
  • I view this investment as purely speculative. It is not an investment, it is a gamble!
  • I can commit as little as $250 and up to about $5,000 (details below). I can choose a number that will keep my interest but it won’t break the bank either way.

I’ve documented the process below:

11/17/2014. I got an e-mail with the subject “Lending Club IPO – Directed Share Program (DSP)” telling me that I was eligible to participate and that I had to opt-in to sharing my information with Fidelity Investments. Here is a screenshot:

lcipo1

I clicked, and then was instructed to wait. (More below)

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Prosper vs. LendingClub Investor Experiment: 2 Year Update

lcvspr_clipoIn November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see previous updates here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.

It is now about a week shy of the two year anniversary of this experiment, so here’s another quick update.

$5,000 LendingClub Portfolio. As of October 20, 2014, the LendingClub portfolio has 157 current and active loans. 71 loans were paid off early and 21 have been charged-off ($314 in principal). 3 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $3,515 in uninvested cash from early payments and interest. Total adjusted balance is $5,392. LendingClub reports my adjusted net annualized return as 5.27%. Here is a screenshot of my account.

1410_lc

$5,000 Prosper Portfolio. My Prosper portfolio now has 142 current and active loans, 85 loans paid off early, 31 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$66). $3,024 in uninvested cash (early payments and interest). Total adjusted balance is $5,334. Prosper reports my net annualized return as 5.56%. Here is a screenshot of my account.

1410_prosper

Recap and Thoughts

  • P2P lending is legit. LendingClub is preparing for an IPO on the NYSE. Institutional investors are buying a significant portion of LendingClub and Prosper loans. This WSJ article says 66% of Prosper loans in 2014 have been sold to institutional investors. What started out as the Wild West of unsecured loans is now accepted by Wall Street. This would suggest that reliable positive returns for investors are more likely, but also that chances for outsized returns will be diminished.
  • If you continually reinvest your interest, the return numbers you see will be higher than your actual long-term returns. Due to how they are calculated, your reported return will deteriorate as your loans age and more borrowers default. After two years, Prosper reports my annualized return as 5.56%. 4 months ago, it was 5.76%. 8 months ago, it was 7.55%. LendingClub reports my annualized return after 2 years as 5.27%. 4 months ago, it was 5.94%. This doesn’t mean you shouldn’t invest and your returns may better than mine, but be aware of this pattern if most of your loans are new.
  • If I were to invest all over again… First, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free automated investments at LendingClub (no minimum at Prosper). Picking loans can be fun for some but I got bored after a while.
  • LendingClub vs. Prosper relative performance. I tried my best to invest at both websites with the same criteria and overall risk preference. Right now, LendingClub is ahead by a bit. I wouldn’t put too much importance on the absolute numbers as I stopped reinvesting into new loans (at both sites) after the first year. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances separately over these past two years:
    1410_prosperlc

Prosper vs. LendingClub Investor Returns 19.5 Month Update

lcvspr_clipoIn November 2012, I invested $10,000 into person-to-person loans split evenly between Prosper Lending and Lending Club, looking for high returns from a new asset class. After diligently reinvesting my earned interest into new loans, I stopped my after one year (see updates here and here) and started just collecting the interest and waiting see how my final numbers would turn out at the end of the 3-year terms.

My last update was 4 months ago, so here’s what things look like after 19.5 months.

$5,000 LendingClub Portfolio. As of June 15, 2014, the LendingClub portfolio had 180 current and active loans. 51 loans were paid off early and 15 have been charged-off ($314 in principal). 6 loans are between 1-30 days late. 5 loans are between 31-120 days late, which I will assume to be unrecoverable. $2,679 in uninvested cash (early payments and interest). Total adjusted balance is $5,368.

1406_lc

$5,000 Prosper Portfolio. My Prosper portfolio now has 157 current and active loans, 78 loans paid off early, 23 charged-off. 6 loans are between 1-30 days late. 6 are over 30 days late, which to be conservative I am also going to write off completely (~$89). $2,434 in uninvested cash (early payments and interest). Total adjusted balance is $5,322.

1406_prosper

Recap and Thoughts

  • The fact that institutional investors are buying a significant portion of Prosper and LendingClub loan inventory would seem to prove that the concept is successful. If I were to invest all over again, I would do it within an IRA to avoid tax headaches. I would also buy at least 100 loans x $25, which also happens to be the $2,500 minimum for free auto-investment at LendingClub (no minimum at Prosper). But simply put, I am not in love with P2P loans enough to allocate my precious IRA space to them.
  • My total adjusted balance is $10,690, which actually shows a slight recovery from my last update in which my total balances were actually dropping. At least I’m still headed to a final balance higher than a savings account. My idle cash is starting to pile up though, so I will take $2,500 out of each account soon and put it elsewhere.
  • Prosper says my annualized returns are actually 5.76%. But just 4 months ago, they said I was earning 7.55%. The lesson here is that your returns will continue to vary and likely deteriorate as your loans age, so don’t assume your returns will always stay the same as they are in the beginning (your returns will look good for a long time if you keep reinvesting into new loans). LendingClub says my annualized returns are now 5.94% (5.24% if you assume all loans 30+ days late will be total losses). Not awful return numbers so far in this low-interest rate environment, but less than I would have hoped for.
  • Prosper is still doing worse relatively than LendingClub. This could change again in the future. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances over these past 15.5 months:
    1406_prvslc

Tax Guide 2013 for LendingClub and Prosper 1099 Forms

Updated 2014. I’ve gotten a few tax-filing questions regarding P2P lenders Prosper Lending and Lending Club. For tax year 2013, LendingClub provided individual investors extra guidance with their Tax Guide for Retail Investors [pdf]. Using this information, I have updated this post.

Don’t file too early. My first recommendation is to not print out or download any of your 1099s until mid-March. Both Prosper and LendingClub seem to regularly issue corrected and/or amended 1099 forms with new numbers late in February. If you already printed them out earlier, go back and make sure they haven’t been changed. After having to file an amended return a few years ago, I always wait until after mid-March to gather all my tax documents.

Where to find your tax documents. I don’t think either Prosper or Lendingclub sends you 1099 forms in the mail. The easiest way for me to direct you to these documents is for you to cut-and-paste the following URLs into your web browser and then log into your accounts. Here are screenshots of what the pages should look like for Prosper and LendingClub.

https://www.prosper.com/secure/account/common/statements.aspx

https://www.lendingclub.com/account/taxDocuments.action

Tax disclaimer. I am not a tax professional. The following is based on my best attempt at understanding the fuzzy world of P2P lending taxes. I am simply sharing how I’m going to do my personal tax return, but you should consult a tax professional for an expert opinion. You may not get all or most of these forms.

LendingClub

LendingClub 1099-OID. OID stands for original issue discount. The total of Box 1 is basically what LendingClub is reporting as the interest earned on your loans, net of fees. This interest should be reported on Schedule B and taxed as ordinary interest income (similar to interest from bank accounts).

LendingClub 1099-B (Recoveries for Charge-offs). If you had any loans charged-off*, but they still recovered some money later on, that will be reported here. It should be broken down into either short-term or long-term capital gains. Because it already tells me short-term or long-term, I will simply report the totals with acquisition and sell date(s) as “various”.

LendingClub 1099-B (Folio secondary market). If you sold any loans on the secondary Folio market, then the sales should be reported here. It should also be broken down into either short-term or long-term gains or losses. I will simply report the totals on Schedule D, using my acquisition and sell date(s) as “various”.

LendingClub 1099-MISC. I would just type this form into TurboTax box-by-box or submit directly to your accountant, usually under “Other Income”. Box 7 amounts will be subject to self-employment taxes, Box 3 amounts will not.

Prosper Lending

Prosper 1099-OID. Similar story to the LendingClub 1099-OID above, except they just give you the total from all your loans. Again, I have all zeros except for Box 1, which I will report as ordinary interest income on Schedule B.

Prosper 1099-B (Recoveries for Charge-offs). Again, anything listed here should be broken down into either short-term or long-term capital gains/losses and recorded on Schedule D. Prosper includes loan charge-offs on this form.

Prosper 1099-B (Folio secondary market). Again, anything listed here should also be broken down into either short-term or long-term gains or losses.

Prosper 1099-MISC. I would just type this form into TurboTax box-by-box or submit directly to your accountant, and it should be pretty straightforward. Box 7 amounts will be subject to self-employment taxes, Box 3 amounts will not.

*Reporting Charge-offs

If you have loans that were charged-off in 2013 (loan is very late and attempts to collect have failed, so they give up), you can write them off as a non-business bad debt. You can find these in either your year-end statements (LendingClub) or your 1099-B form (Prosper). These are all treated as short-term capital losses, which you can use to offset short-term capital gains from other investments or you can deduct against up to $3,000 in ordinary income per year (with the balance carrying forward to the next year).

More resources: Let me also recommend Peter Renton’s post at LendAcademy, the follow-up comments on that post, and this forum post by AmCap as good references for an intelligent discussion on the topic. Also see the LendingClub and Prosper tax pages, even though they aren’t especially helpful.

Prosper vs. LendingClub Investor Experiment: 15.5 Month Update

After posting the 1-year update (Part 1, Part 2) of my Beat-The-Market experiment back on November, I got bored. I had started with $10,000 split evenly between Prosper Lending and Lending Club, but although this alternative asset class had potential, I just didn’t find it reliable enough for me to invest significant funds in it.

I didn’t sell off my existing loans, but I stopped reinvesting in new ones. I hadn’t logged into either account for months, but this week I wanted to download my tax documents. So, I figured another update was in order, 3.5 months later.

$5,000 LendingClub Portfolio. As of February 19th, 2014, the LendingClub portfolio had 199 current and active loans, 36 loans that were paid off early, and none in funding. 6 loans are between 1-30 days late. 8 loans are between 31-120 days late, which I will assume to be unrecoverable. 7 loans have been charged off ($152 in principal). $1,814 in uninvested cash. Total adjusted balance is $5,305. This is only $1 higher than 3.5 months ago.

1402_lc700

$5,000 Prosper Portfolio. My Prosper portfolio now has 185 current and active loans, 56 loans that were paid off early or payoff in progress, and none in funding. 4 loans are between 1-30 days late. 10 are over 30 days late, which to be conservative I am also going to write off completely (~$183 in remaining principal). 14 have been charged-off ($302 in principal). $1,619 in uninvested cash. Total adjusted balance is $5,255. This is $45 less than 3.5 months ago.

1402_prosper700

What has happened since my last check-in on November 1st?

  1. My total adjusted balance is $10,560, which is a $44 drop over the last 3.5 months. Even with the increase in idle cash, my total balances should still be inching up, not down. It appears that an increasing number of late and defaulting loans are starting to catch up to me.
  2. My idle cash balance across both accounts has increased by $1,527 in just 3.5 months, indicating an increasing number of early loan payoffs and thus fewer people paying me 10% interest rates.
  3. Prosper is currently doing worse relatively than LendingClub. This could change again in the future. Here’s an updated chart tracking the LendingClub and Prosper adjusted balances over these past 15.5 months:
    1402_pr_lc

I suppose that I’ll hang onto these loans and see how the rest unfolds. I know that other people report 10%+ annual returns on Prosper and Lending Club and may be better loan pickers than me, but I still be wary setting such high expectations for the average P2P investor. I’m still in the black and doing okay, but I wouldn’t count your chickens until the loans get a bit more mature.

$30,000 Beat-the-Benchmark Experiment – One Year Update, Prosper and LendingClub

After posting Part 1 yesterday, here is Part 2 of my Beat-The-Market experiment one-year update. In order to test out P2P lending, I started with $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return.

I tried to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. I reinvested any new money from interest and early loan payoffs regularly for the first several months, but recently I stopped reinvesting my money as aggressively as I was thinking about selling everything (also LendingClub inventory was a little sparse at times). I ended up with $1,044 of idle cash at LendingClub and $862 at Prosper. More on that later.

$5,000 LendingClub Portfolio. As of November 1st, 2013, the LendingClub portfolio had 218 current and active loans, 28 loans that were paid off early, and none in funding. Two loans are between 1-30 days late. 6 loans ($126) are between 31-120 days late, which I will assume to be unrecoverable. Three loans have been charged off ($69, two A-rated and one C-rated). $1,044 in uninvested cash. Total adjusted for late loans is $5,304.


(click to enlarge)

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LendingClub and Prosper vs. High Yield Junk Bonds

Yesterday, I posted a 9-month update on my $10,000 P2P lending portfolio with loans from Prosper and LendingClub. Every so often it is pointed out that lending unsecured money directly to random people at high interest is not very safe, and you could just invest in junk bonds from shakier companies instead.

“Junk” bonds, also known as High Yield bonds, are bonds from companies which have earned a credit rating from one of the major rating agencies that is worse than the “investment-grade” tier. Perhaps the company already has a lot of debt, or its balance sheet is otherwise worrisome. Bonds from some pretty big and well-known companies have been rated junk from time to time.

This is not a detailed analysis and not even technically an apples-to-apples comparison, but I ran some quick numbers to satisfy my own curiosity. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is the largest high yield US corporate bond ETF, with over $15 billion in assets and an expense ratio of 0.50%. Here’s a chart of the credit rating breakdown of the portfolio, taken from their latest Q2 2013 factsheet.

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LendingClub vs. Prosper Loan Performance Comparison, 9-Month Update

I invested $10,000 into person-to-person loans in November 2012, split evenly between LendingClub and Prosper. It’s been a little over 9 months since then, so I wanted to give a detailed update in addition to my brief monthly updates. The primary goal of this portfolio is to earn a target return of 8-10% net of defaults, but I also wanted to see if there were significant differences between the two competitors Prosper and LendingClub.

I’m also considering liquidating both portfolios after 12 months have passed. I’m getting a little bored with the experiment, and having to sell the loans would also allow me to compare the ease of selling either company’s loans on the secondary market.

Portfolio Credit Quality Comparison

I wanted to keep these portfolios comparable in terms of risk level, while still trying to maximize overall return net of defaults. Peter Renton of LendAcademy made this helpful chart comparing estimated defaults rates with their respective credit grades. Since each company has their own proprietary credit grading formula, they don’t match up perfectly.

Here’s my portfolio breakdown:

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$10,000 P2P LendingClub & Prosper Loan Portfolio Update – April 2013

Here’s the April 2013 update for my peer-to-peer lending portfolio, the last of three “real money” portfolios being tracked monthly as part of my Beat the Market Experiment. See also the $10,000 Benchmark and $10,000 Speculative portfolio updates.

For this one, I started with $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return. So it’s also a race-within-a-race to see which option offers the best returns.

$5,000 LendingClub Loan Portfolio. Below is a screenshot of my LendingClub account as of 4/1/13. I’ve had loans at LC before, but sold them all on the secondary market and started fresh for this tracking experiment. Here are screenshots of my total balance and my portfolio details. I would say my overall risk level is moderate-conservative with mostly A and B rated loans (top two grades).


(click to enlarge)

The portfolio is now 5 months old, with 208 currently active loans, 9 loans that were paid off early, and 5 in funding. Two of the active loans are currently between 31-120 days late, which according to LendingClub have a 53% recovery rate overall. But to be conservative I will now assume the remaining $48 in principal to be completely lost. The current weighted average interest rate is reported as 12.33%, which will hopefully offer enough cushion to still net an 8% return.

I pick loans using a preset filter based on my LendingClub filters post as well as my Prosper filter research noted below. I never spend any time reading individual loan descriptions, keeping it passive and scalable. The filters are saved online and it takes just a minute to reinvest interest, although I still tend to forget until I do these updates. In addition to outstanding loan principal, the account also has $37.02 in idle cash, $125 in funding limbo, and $40.39 in accrued interest.

LendingClub.com account value: $5,161 (includes principal + accrued interest, minus 30+ day lates, after fees)

$5,000 Prosper.com Loan Portfolio. Below are screenshots of my Prosper account page as of 4/1/13.

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$10,000 P2P LendingClub / Prosper Loan Portfolio Update – March 2013

Here’s the 3rd and last piece of the monthly updates for my Beat the Market Experiment, a set of three real money portfolios started on November 1st, 2012. See also my $10,000 Benchmark and $10,000 Speculative portfolio updates for March 2013.

For this one, I started with $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return.

$5,000 LendingClub Loan Portfolio. Below is a screenshot of my LendingClub account as of 3/1/13. I’ve had loans at LC before, but sold them all on the secondary market and started fresh for this tracking experiment. Here are screenshots of my total balance and my portfolio details. I would say my overall risk level is moderate-conservative with mostly A and B rated loans (top two grades).


(click to enlarge)

The portfolio is now 4 months old, with 206 currently active loans, 7 loans that were paid off early, and one is in funding. Two of the active loans are currently between 16-30 days late. The current weighted average interest rate is 12.36%, which means I can lose 4.36% to defaults and still net an 8% return.

I pick loans using a preset filter based on my LendingClub filters post as well as my Prosper filter research noted below. I never spend any time reading individual loan descriptions, as I’m trying to keep this mostly passive and scalable. The filters are saved online and it takes just a minute to reinvest interest, although I still tend to forget until I do these updates. In additional to outstanding loan principal, the account also has $249 in idle cash, $25 in funding limbo, and $38 in accrued interest.

LendingClub.com account value: $5,160 (includes principal + accrued interest, after fees)

$5,000 Prosper.com Loan Portfolio. Below are screenshots of my Prosper account page as of 3/1/13.
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$10,000 P2P LendingClub / Prosper Loan Portfolio Update – February 2013

Here’s the 3rd and last piece of the monthly updates for my Beat the Market Experiment, a set of three real money portfolios started on November 1st, 2012. See also my $10,000 Benchmark and $10,000 Speculative portfolio updates for February 2013.

I started with $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return.

$5,000 LendingClub Loan Portfolio. Below is a screenshot of my LendingClub account as of 2/1/13. Keep in mind that I had loans before, but sold them all on the secondary market and started fresh for this tracking experiment. However, the charged-off loans from that period stayed on my record even though the overall return for my very conservative loan portfolio back then was over 5%.


(click to enlarge)

I now have a total of 194 active and issued loans. I used simple loan criteria based on my LendingClub filters post as well as my Prosper filter research noted below, saving me from having to look through individual loan descriptions. The portfolio is very young, but so far all loans are current (16 days past due is considered late). The current weighted average interest rate is 11.66%, which means I can lose 3.66% to defaults and still net an 8% return.

LendingClub.com account value: $5,113.27 (includes principal + accrued interest, after fees)

$5,000 Prosper.com Loan Portfolio. Below are screenshots of my Prosper account page as of 2/1/13.
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$10,000 P2P LendingClub and Prosper Loan Portfolio Update – January 2013

Here’s the last part of the monthly update for my Beat The Market Experiment, a set of three real-money portfolios started on November 1st, 2012. See also my $10,000 Benchmark and $10,000 Speculative portfolio updates for January 2013.

On 11/1/12, I deposited $10,000 split evenly between Prosper Lending and Lending Club, and went to work lending other people money and earning interest with an 8% target net return.

$5,000 LendingClub Loan Portfolio, January 2013 Update. (A little late on the update, although only about $9 in extra interest was accrued since 1/1.) Below is a screenshot of my LendingClub account as of 1/9/13. Keep in mind that I had loans before, but sold them all on the secondary market and started fresh for this tracking experiment.


(click to enlarge)

Since last month, I invested another $400 for a total of 191 active and issued loans. I used simple loan filters based on my LendingClub filters post as well as my Prosper filter research noted below, and haven’t spent any time looking through any individual loan descriptions. The portfolio is very young, but so far all loans are current (16 days past due is considered late).

LendingClub.com account value: $5,082.51 (includes principal, accrued interest, net of fees)
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