Bloomberg “Misfires” with Deceptive Headline on Lending Club

It’s become commonplace in today’s day and age for journalists to create stories with false narratives in an attempt to increase readership. After all, a scandalous headline is what sells, and can leave a lasting impression. The media are protected under the 1st amendment and can say just about anything they want, often without any recourse. It’s been amusing to watch certain journalists over the past few months try so hard to create negative stories to disparage the fast growing P2P/Marketplace Lending industry.

The recent article published by Bloomberg last Friday was the latest example of misguided journalism. Not only was a presentation by LC Advisors and a couple of charts taken out of context, but the author created a misleading headline to draw attention to a story riddled with inaccurate statements and false narratives.

Here are the facts:

• On aggregate, Lending Club’s loan portfolios have been performing as forecasted.
• Every year a small percentage of loans with certain characteristics underperform forecasts.
• Every year a small percentage of loans with certain characteristics outperform forecasts.
• This is evidence that the opportunity for alpha exists.
• This is evidence that Lending Club is constantly re-evaluating and re-pricing certain loans.

“This is nothing out of the ordinary”, says Sid Jajodia, Lending Club’s Chief Investment Officer.  We couldn’t agree more.

Lending Club also published their own rebuttal to the article this morning.

The source used in Bloomberg’s article was a firm that has been advising their clients to Sell (or short) LC’s stock. LC was down 7.7% on the day the article was published. I know (and respect) the journalist on this story, Noah Buhayar, and have been interviewed by him multiple times in the past. Overall, I think he’s a smart journalist and has done a great job covering Warren Buffett over the years. That being said, his story would have been far more credible had there been more fact checking performed with other sources who are more familiar with the intricacies of this asset class and how to better interpret statistical data.

Conclusion:  Lending Club’s models are firing on all cylinders as well as we have expected.  If these models ever truly do “misfire”, we will certainly know about it long before the media does.

Don Davis