A New Bubble or are Banks in Deep Trouble?
Don’t let all the bank earnings reports distract you from the really big news this week for U.S. banks.
As reported in the Wall Street Journal April 17th, Lending Club announced that it raised $115 million in new capital to fund its meteoric growth. For those too busy to see over the horizon, Lending Club is a peer-to-peer lender determined, in the words of their founder, to “transform the entire banking industry.”
They and their competitors remind me of Capital One and MBNA back in 1990 when a new generation of niche credit card firms launched. Back then bank competitors pooh-poohed these “specialty” players as too small to matter. Over a 15-year period, these itty-bitty credit card niche players grabbed enormous market share and pushed complacent bankers out of the card business.
Could the same thing be happening before our very eyes with peer-to-peer lending. Apparently some smart investors (Blackrock, T. Rowe Price, and Wellington Management) think so, having invested in Lending Club. Based on the equity raise, according to the Financial Times and Wall Street Journal, Lending Club today is valued at roughly $3.8 billion.
How impressive is that number? Consider this: Lending Club’s market cap is greater than First Niagara and Synovus Financial, both of which are among the 50 biggest bank holding companies in the U.S.
And for further perspective, over the past 12 months Lending Club booked $2 billion in loans. That’s less than 1/10th the total asset size of one of America’s best-run banks, Kansas City-based Commerce Bank. Yet the 148 year-old Commerce Bank has a market cap today a mere 10% higher than Lending Club.
So here’s the question: Is Lending Club a 2014 version of a dot-com bubble? Or is it a 10X Risk that threatens the future of bank lending? Stay tuned.
Written by Richard J. Parsons