What’s Happening with Lending Right Now

Why Is Larry Summers Signing Up With Lending Club?

The former CEO of America’s second-largest investment bank, a former treasury secretary of the Treasury and one of America’s most sought after economic gurus, and America’s most famous technology analyst all have something in common besides vacation plans that overlap in Aspen and Davos: they sit on the board of a smallish company that specializes in helping low-risk borrowers pay off their credit card debts.

The illustrious trio is John Mack, former CEO of Morgan Stanley; Mary Meeker, the famed technology stock analyst and partner at the venture capital firm Kleiner Perkins Caufield & Byers; and Larry Summers, who was appointed to the board of the San Francisco–based finance startup today. The company, started in 2006, is one of a new breed of financial firm: a peer to peer lender. TechCrunch, the John the Baptist to the assorted Messiahs of Silicon Valley, regularly writes about the company and sings its praises. It has been anointing its model and that of the entire peer-to-peer lending industry as disruptive. (In Silicon Valley, there is no higher compliment.)

A typical bank takes in deposits and then lends out money, and keeps the difference between the interest rate paid to its depositors and the rate paid to its borrowers. By contrast, Lending Club allows individual lenders to be connected to borrowers who meet criteria specified by Lending Club. By focusing only on low-risk borrowers—Lending Club plays almost exclusively with “prime” and “super prime lenders, rejects 90 percent of applicants, and borrowers have an average credit score of 715—it is able to present a wide range of relatively safe lending opportunities. Renaud Laplanche, the co-founder and CEO, describes Lending Club borrowers as largely young professionals with high incomes who haven’t necessarily built up a ton of savings or home equity.

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Top central banks extend U.S. dollar-lending program

Major central banks acted Thursday to try to shore up confidence in the global financial system by extending a program that makes it easier for banks to borrow U.S. dollars.

Thursday’s move renews for a year a program that was expanded in November 2011 in response to Europe’s debt crisis. It had been set to expire in February.

The program lets central banks swap their currencies at the U.S. Federal Reserve in exchange for dollars. Commercial banks can then borrow dollars, the dominant currency of trade, at low rates. Central banks pay the Fed interest on the dollars they lend to commercial banks.

The move is intended to help stabilize a global financial system straining from Europe’s financial crisis and slowing growth worldwide. The alliance of 17 European countries that use the euro is in recession, with unemployment at a record high 11.7 percent.

The central banks issued news releases simultaneously Thursday in a coordinated signal to investors and lenders that they will continue to try to ease global financial strains.

Still, economists noted that the dollar swaps aren’t being heavily used, a sign that most banks have enough dollars to make dollar-denominated loans. As of last week, the Fed has about $12.2 billion in dollar swaps outstanding, down from $109 billion in February. The record high of $583.1 billion was set in December 2008, at the height of the financial crisis.

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National Bank’s Allure Fades as Lending Hits Zenith

National Bank of Canada generated the best risk-adjusted returns among Canadian banks through the global financial crisis by focusing on its home market. Some analysts say that strategy is now working against the bank.

National Bank’s stock rose 2.6 percent in the five years through today after adjusting for price swings, the top among Canada’s eight-biggest banks, according to a Bloomberg Riskless Return ranking. The lender, based in Montreal, had the highest total return among its peers at 81 percent and less volatility than larger peers Royal Bank of Canada and Canadian Imperial Bank of Commerce.

National Bank of Canada generated the best risk-adjusted returns among Canadian banks through the global financial crisis by focusing on its home market. Photographer: Brent Lewin/Bloomberg

The bank, which operates mostly in Quebec, outperformed larger Canadian lenders which expanded in the U.S., Europe, Latin America and Asia over that period. The domestic concentration sheltered the lender from the turmoil of the U.S. subprime mortgage collapse and financial upheaval as well as Europe’s debt crisis.

“Canadian retail banking may have hit its zenith in terms of earnings growth,” John Aiken, an analyst with Barclays Plc, said in an interview. “If we’re going to look at some of the other banks that have access to broader global business lines, National’s performance may not be top-of-class going forward.”

Standard & Poor’s yesterday lowered issuer credit ratings on six Canadian lenders including National Bank and Bank of Nova Scotia (BNS) by one level as they face “incremental pressure from headwinds facing the Canadian economy.”

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5 thoughts on “What’s Happening with Lending Right Now

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