LendingClub lays off 172 employees, blames rising interest rates
LendingClub announced Thursday it was laying off 172 employees, or 14% of its staff, marking the fintech's second major round of cuts this year.
The San Francisco-based online lender is trimming staff, including an executive committee member, as rising interest rates continue to put pressure on its main source of revenue. The macroeconomic environment has been a consistent headwind for the company, which laid off 225 employees in January.
"We continue to proactively implement various measures to navigate the persistent and ongoing macroeconomic headwinds and the resulting pressure in our marketplace, primarily driven by higher interest rates," said CEO Scott Sanborn in a prepared statement. "To that end, we have made the very difficult decision to streamline our workforce."
The latest shakeout includes Chief Administrative Officer and Corporate Secretary Brandon Pace, whose position will be eliminated effective Oct. 19, per a Securities and Exchange Commission filing. Pace has been at LendingClub since 2016, following leadership roles at eBay and PayPal. According to the company's April proxy statement, Pace will receive severance of $417,143. Earlier this year, LendingClub also eliminated the executive committee role of chief capital officer, held by Valerie Kay.
LendingClub expects the layoffs to generate $30 million to $35 million in annualized run-rate compensation and benefits savings compared to the previous quarter. John Hecht, an analyst at Jefferies, said in a note that he expects the savings to benefit margins and profits over time.
"Overall, we think LC is making tough decisions and putting up reasonable results while navigating a tough macro environment," Hecht said in the note.
Rising interest rates have challenged LendingClub's central business of selling loan originations to investors. Costs to buy the loans have gone up, and inflation has increased the risks of those investments. The banking crisis in March further tested the business as appetite from banks, which had been the primary buyers of LendingClub's loans since last year, fell further.
Sanborn said on LendingClub's second quarter earnings call that the company will begin to accelerate growth again once interest rates stop rising or if bank demand to buy loans rises.
LendingClub announced in its preliminary third quarter results on Thursday that it expects revenue of $198 million to $200 million, and net income of $4 million to $5 million, inclusive of most severance charges from the recent round of layoffs. Although those estimates mark a quarterly drop in revenue and net income of about $32 million and $5 million, respectively, analysts wrote that they thought the neobank showed promise.
The company also announced that it originated about $1.5 billion in loans in the third quarter, down from $2 billion in the previous quarter.
Wedbush analyst David Chiaverini said in a note he expected LendingClub to outperform in its third quarter results, which will be announced on Oct. 25.
"As rates stabilize we think this will be a tailwind for [LendingClub] as it leans further into its marketplace — resulting in a boost to revenue sources and optionality," Chiaverini wrote. "With continued record-high consumer credit card debt and a mixed macro-backdrop, the core drivers in LC's business remain intact."
Hecht wrote in his note that the company generally met guidance despite a "tough macro environment."
As one of the few fintechs with a bank charter, along with SoFi, LendingClub has also been able to create new products to offset challenges to its business. Earlier this year, the company began offering structured certificates, a private securitization for institutional investors. Chiaverini wrote in his Thursday note that he expects the product to see continued uptake in Q3.
"As a bank, this is something we are uniquely positioned to deliver for our marketplace investors," Sanborn said on the second-quarter call. "We've had good initial reception to the program, and we have a solid pipeline of forward interest."
