KCLarkin Posted April 6, 2016 Author Share Posted April 6, 2016 http://www.forbes.com/sites/valleyvoices/2016/03/10/the-short-history-and-long-future-of-the-online-lending-industry/#1c0a41d94874 Link to comment Share on other sites More sharing options...
intothebreach Posted April 8, 2016 Share Posted April 8, 2016 http://www.nytimes.com/2016/04/07/business/dealbook/fintech-firms-are-taking-on-the-big-banks-but-can-they-win.html?ref=dealbook Link to comment Share on other sites More sharing options...
LowIQinvestor Posted May 3, 2016 Share Posted May 3, 2016 http://finance.yahoo.com/news/ondeck-reports-first-quarter-2016-201500452.html Down 35% today. I see no moat with this company. Link to comment Share on other sites More sharing options...
mateo999 Posted May 3, 2016 Share Posted May 3, 2016 http://finance.yahoo.com/news/ondeck-reports-first-quarter-2016-201500452.html Down 35% today. I see no moat with this company. I don't have a position but am contemplating and trying to quickly get up to speed. In your opinion, is a moat required for this stock to do well from here? Also, question for the board, but can someone provide their take on the underlying drivers of the whole loan market "uncertainty" the company saw in the quarter? From last night's call: "In Q1 conditions in the whole loan market for online lenders became increasingly uncertain, while our visibility on expanding our warehouse lines and completing a securitization transaction improved." and "Howard Katzenberg - On Deck Capital, Inc. - CFO Let me take a step back and just explain kind of what happened in the quarter. Our marketplace buyers fall into two camps. The first is those that buy and want to hold to maturity. And the other segment buys with a plan on securitizing the loans and selling off the residual positions of the portfolio. Given the inherent leverage in the securitization transactions, those buyers historically have been willing to pay higher premiums versus kind of the more traditional hold to maturity investors. And in this quarter we did see stable activity in the more traditional investors. We actually had a record quarter in terms of the loan volumes sold to the folks not employing the securitization leverage. But the securitization segment, which consumed the majority of our volume in the prior periods, was less willing to transact at the premium levels we've seen in the past. Clearly we're not alone in experiencing challenges with that strategy. So there's definitely a big market sentiment and relative value factor at play that affected the premiums in the quarter. So the gain on sale decline was largely driven, Bob, by just the mix shift away from the securitization buyers and more towards the more traditional hold to maturity buyers. And unfortunately this shift occurred faster than we anticipated a few months ago. But as it did, we leveraged the strength and resiliency of our balance sheets, reallocate funding to more the more economic strategies." Does anyone have any docs related to any of these securitizations? Link to comment Share on other sites More sharing options...
Graham Osborn Posted May 3, 2016 Share Posted May 3, 2016 I don't have a position but am contemplating and trying to quickly get up to speed. In your opinion, is a moat required for this stock to do well from here? Also, question for the board, but can someone provide their take on the underlying drivers of the whole loan market "uncertainty" the company saw in the quarter? Well, junk bond and investment grade spreads have widened on average over the past 6 months. When that happens, the smart money (buys and resellers of securitized products) demands a higher yield. The fact that ONDK and LC use such short loan histories as predictors of future default risk implies they are dumber than the people buying these securities. This puts them at risk for demanding too high a price for the loans rather than selling while they still can, similar (although on a smaller scale) to what happened to Merrill and Bear on the last merry-go-round. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted May 4, 2016 Share Posted May 4, 2016 At least relative to other predatory small business lenders, ONDK does seems to be providing a valuable service. This seems like a dangerous thought process to follow. Reminds me of OCN when a lot of people were saying "they're doing some shady stuff, but way less than their competitors." I just don't think the type of people who run these businesses are the type of people I'd trust with my money. Link to comment Share on other sites More sharing options...
mateo999 Posted May 4, 2016 Share Posted May 4, 2016 I don't have a position but am contemplating and trying to quickly get up to speed. In your opinion, is a moat required for this stock to do well from here? Also, question for the board, but can someone provide their take on the underlying drivers of the whole loan market "uncertainty" the company saw in the quarter? Well, junk bond and investment grade spreads have widened on average over the past 6 months. When that happens, the smart money (buys and resellers of securitized products) demands a higher yield. The fact that ONDK and LC use such short loan histories as predictors of future default risk implies they are dumber than the people buying these securities. This puts them at risk for demanding too high a price for the loans rather than selling while they still can, similar (although on a smaller scale) to what happened to Merrill and Bear on the last merry-go-round. I appreciate all of that, but is 1x book the right multiple for a company seeing no deterioration in credit quality on a book of short term loans? What's this worth in runoff? Lending Club trades at 3x book. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 4, 2016 Author Share Posted May 4, 2016 At least relative to other predatory small business lenders, ONDK does seems to be providing a valuable service. This seems like a dangerous thought process to follow. Reminds me of OCN OCN is the exact opposite. OCN was deeply unpopular with consumers. It was not providing a good or valuable good service. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted May 4, 2016 Share Posted May 4, 2016 That wasn't my point, but it doesn't matter. Don't want to derail the thread. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 5, 2016 Author Share Posted May 5, 2016 I appreciate all of that, but is 1x book the right multiple for a company seeing no deterioration in credit quality on a book of short term loans? What's this worth in runoff? Lending Club trades at 3x book. - Bear: Book value is fiction because reserves aren't adequate if there is a recession - Bull: Book value undervalues the company because there are significant intangibles not on the balance sheet (technology and acquired customers) You'd think this would be an attractive buyout candidate (for technology) at current price. Link to comment Share on other sites More sharing options...
Evolveus Posted May 5, 2016 Share Posted May 5, 2016 On the conference call, management made the case that they made a long term strategic decision to retain some loans instead of securitizing because they weren't seeing the pricing they liked in the securitized space. Over the life of the retained loan, they would make more than selling it for a one time pop. The expenses and reserve provisions for retaining those loans are booked now while income from them will be booked over the life of the loan. It's pretty obvious that that hurts near term numbers. As markets got volatile in Feb/March of this year, pricing in the capital markets tightened. OnDeck wasn’t willing to sell their loans at the reduced pricing, and so instead decided to hold more of their loans on balance sheet. Management touted this as a benefit of their hybrid funding model, where they can go to marketplace, or retain, or both depending on conditions. So choosing to sell less loans immediately causes a big change in 2016 GAAP performance, even though it does not decrease OnDeck’s economics. The CEO also emphasized that they are more concerned with loan quality and long term positioning rather than being anchored to hitting near term guidance at all costs. To me, it seemed that folks were associating bringing loans on to their books as akin to Lehman and BS having to that when the markets were locking up on them before the crisis. I can't pretend to know if management was being honest and truly viewing this development as a good thing, or are they spinning it to try and stop the bleeding. I do think the partnership with Chase must be a big vote of confidence for them as well as the recent $250m securitization they recently closed at a blended 4.8% disclosure: long / tracking position Link to comment Share on other sites More sharing options...
LowIQinvestor Posted May 24, 2016 Share Posted May 24, 2016 One day I bet we look back and laugh at the concept of the "OnDeck Score".... This is an online payday lender for businesses...period. Worth a read: OnDeck's Implosion May Soon Engulf BofI http://seekingalpha.com/article/3973481-ondecks-implosion-may-soon-engulf-bofi Link to comment Share on other sites More sharing options...
abyli Posted May 24, 2016 Share Posted May 24, 2016 One day I bet we look back and laugh at the concept of the "OnDeck Score".... This is an online payday lender for businesses...period. Worth a read: OnDeck's Implosion May Soon Engulf BofI http://seekingalpha.com/article/3973481-ondecks-implosion-may-soon-engulf-bofi I am curious on your opinion on BOFI. The author seems very biased against bofi. You must agree with the short sellers. Thanks. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted May 24, 2016 Share Posted May 24, 2016 One day I bet we look back and laugh at the concept of the "OnDeck Score".... This is an online payday lender for businesses...period. Worth a read: OnDeck's Implosion May Soon Engulf BofI http://seekingalpha.com/article/3973481-ondecks-implosion-may-soon-engulf-bofi I am curious on your opinion on BOFI. The author seems very biased against bofi. You must agree with the short sellers. Thanks. Years ago I had done some research on BOFI. These guys were always looking for ways to "juice" their loan portfolio. They were lending on RV's. They were making "stated income" loans. They were loaning 100% of appraised value on real estate and on and on and on.... They do seem to be making money...but they are always kind of on the fringe of lending. If they hit a serious bump in the road, I would wager that they will fall to pieces. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted May 24, 2016 Share Posted May 24, 2016 One day I bet we look back and laugh at the concept of the "OnDeck Score".... This is an online payday lender for businesses...period. Worth a read: OnDeck's Implosion May Soon Engulf BofI http://seekingalpha.com/article/3973481-ondecks-implosion-may-soon-engulf-bofi I am curious on your opinion on BOFI. The author seems very biased against bofi. You must agree with the short sellers. Thanks. BOFI's portfolio is a black-box and they have some potentially huge issues. I've spoken with the CEO a few times more than 2+ years ago. Personally, I don't think he is the greatest person ever. I think it would be very difficult to make a compelling case that BOFI's issues can be safely ignored. I say all this knowing I was probably biased in favor of supporting/trusting them up until recently. Get a PACER account if you are interested in them (it's free if you use <$15/month or quarter?). Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted May 24, 2016 Share Posted May 24, 2016 One day I bet we look back and laugh at the concept of the "OnDeck Score".... This is an online payday lender for businesses...period. Worth a read: OnDeck's Implosion May Soon Engulf BofI http://seekingalpha.com/article/3973481-ondecks-implosion-may-soon-engulf-bofi I am curious on your opinion on BOFI. The author seems very biased against bofi. You must agree with the short sellers. Thanks. Years ago I had done some research on BOFI. These guys were always looking for ways to "juice" their loan portfolio. They were lending on RV's. They were making "stated income" loans. They were loaning 100% of appraised value on real estate and on and on and on.... They do seem to be making money...but they are always kind of on the fringe of lending. If they hit a serious bump in the road, I would wager that they will fall to pieces. http://marketrealist.com/2014/09/risks-associated-short-term-wholesale-funding/ BOFI has a ton of inherent risk. ONDK/LC/ect are certainly a different animal, though I ultimately see a similar outcome. Go look for the oldest payday lending operations. This is one of the oldest business models in US history, yet you won't find many payday lenders that have been operating for more than 10-20 years... Link to comment Share on other sites More sharing options...
txfan2424 Posted May 25, 2016 Share Posted May 25, 2016 For what it's worth, I think ONDK is a zero. The core biz doesn't really make money and without capital market support, ONDK will have to hold the toxic loans being underwritten. As for "technology" value...the banking biz has been around for hundreds of years. If banks aren't making loans to certain borrowers, there is usually a good reason. Link to comment Share on other sites More sharing options...
Picasso Posted May 25, 2016 Share Posted May 25, 2016 For what it's worth, I think ONDK is a zero. The core biz doesn't really make money and without capital market support, ONDK will have to hold the toxic loans being underwritten. As for "technology" value...the banking biz has been around for hundreds of years. If banks aren't making loans to certain borrowers, there is usually a good reason. Well said. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted May 25, 2016 Share Posted May 25, 2016 Hey all: Here is another thing that I don't think anybody has directly addressed.... IF Ondeck and these other lenders can't make a go of it "holding" onto 40% interest loans, who can? I get a mortgage originator having to move loans out the door, it is simply too low margin... That is not the case here. These guys are charging tremendous rates for their loans. Why not hold onto them? Heck, they should EASILY be self funding... Who is the buyer of these loans? Wouldn't they get suspicious if the originating company doesn't want to hold onto these things? Or is it "sharp" financial institutions buying these loans in bulk, repackaging them, and then selling them to "slow money" pension funds & such? There absolutely is money to be made in high interest loans, but you've got to be a niche operator, and it is hard work... The more I think about it, the more I think these guys are a big ZERO. Link to comment Share on other sites More sharing options...
glorysk87 Posted May 25, 2016 Share Posted May 25, 2016 For what it's worth, I think ONDK is a zero. The core biz doesn't really make money and without capital market support, ONDK will have to hold the toxic loans being underwritten. As for "technology" value...the banking biz has been around for hundreds of years. If banks aren't making loans to certain borrowers, there is usually a good reason. Pretty sure this applies to most, if not all, of the marketplace lenders. Access to capital is paramount to fund loans. Cut that access off, and they're dead in the water. Saw it with LC and their access to securitizations being cut. The fall was swift. Link to comment Share on other sites More sharing options...
txfan2424 Posted May 25, 2016 Share Posted May 25, 2016 You are mostly correct. I don't know if LC is a zero b/c they aren't levered and they don't hold the loans they originate. More likely they signficantly decline b/c rates will be really high which will scare off a bunch of borrowers. Banks have an inherent funding advantage (deposits) that is obscured when interest rates are low. This is when the cockroaches show up (ONDK, ENVA and others). During this time, it is hard to distinguish good credit from bad b/c loans grow at such a fast pace, real losses are disguised (20% of loans originated might be bad but by the time realized, loans have doubled so who cares). These "niche market" loans are also expensive to service and expensive to originate. When funding costs increase or growth slows down, virtually all of these go out of business. If one of these lenders isn't making money now (ONDK for example), it is a larger than average sized turd. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted May 25, 2016 Share Posted May 25, 2016 Hey all: Here is another thing that I don't think anybody has directly addressed.... IF Ondeck and these other lenders can't make a go of it "holding" onto 40% interest loans, who can? I get a mortgage originator having to move loans out the door, it is simply too low margin... That is not the case here. These guys are charging tremendous rates for their loans. Why not hold onto them? Heck, they should EASILY be self funding... Who is the buyer of these loans? Wouldn't they get suspicious if the originating company doesn't want to hold onto these things? Or is it "sharp" financial institutions buying these loans in bulk, repackaging them, and then selling them to "slow money" pension funds & such? There absolutely is money to be made in high interest loans, but you've got to be a niche operator, and it is hard work... The more I think about it, the more I think these guys are a big ZERO. Go look for the oldest payday lending operations. This is one of the oldest business models in US history, yet you won't find many payday lenders that have been operating for more than 10-20 years... I wrote this because it really isn't a good business to be in because of the high interest rates. That sounds paradoxical but the folks who actually get loans like these generally don't give a hoot whether they pay you back. It's actually extremely brutal market to operate in. I have a ton of personal experience in short-term, high-interest lending since I basically funded myself during college by running a quasi pawn/lending business. If you are interested I could share some experiences. I generally lent to people I knew personally and I still had roughly 10%-20% default rates across loan types. Once you start offering unregulated, unsecured loans you will have a line a mile long filled with idiots and shady individuals trying to borrow. It's really hard to find decent, trustworthy folks to lend to with such high rates. It's even harder for situations to occur where the loan makes sense for both sides. These folks are obviously are less likely to need $ at those prices. Most of my business was financing arbitrage-like business opportunities other folks had. I basically absorbed all the risk of transaction while they received risk-free profit. Simplifying the deals, they basically acted as my sales staff and received a commission for business they brought in. To this day, I'm still surprised by how quickly the business fell off in late-2010. By 2011 I had to move on. Maybe surprisingly, I think this is a deep-recession/depression type of business. The buyer for these loans are companies like Jeffries (and investors like Leucadia - not sue if they specifically do). It's not that ONDK or LC necessarily don't want to hold the loans (in LC's case, wanting to hold the loans is how they ran into problems), but it brings up a COI if you don't hold all of them, among other issues. The high default rate makes your portfolio extremely volatile, which is why the business model for these companies was to be an origination platform. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 25, 2016 Author Share Posted May 25, 2016 The more I think about it, the more I think these guys are a big ZERO. They have $137 M in cash. Funding Debt is non-recourse, as far as I can tell. So even if 100% of current loans go bad, they would have $100 M in cash. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted May 25, 2016 Share Posted May 25, 2016 The more I think about it, the more I think these guys are a big ZERO. They have $137 M in cash. Funding Debt is non-recourse, as far as I can tell. So even if 100% of current loans go bad, they would have $100 M in cash. I am going to suggest that if you think that is REALLY the case...you should buy every share you can! Perhaps management might spend some of that $100M on marketing, rent, payroll, and maybe, just maybe bonuses? Also, if 100% of the loans go bad, what kind of reputation will this company have? Regulators won't be looking into it? If these loans are at something like 40% interest, and 20% of them eventually go bad...this company should be EASILY self fundable... Link to comment Share on other sites More sharing options...
KCLarkin Posted May 25, 2016 Author Share Posted May 25, 2016 I am going to suggest that if you think that is REALLY the case...you should buy every share you can! Current market cap is $344 M so that would still be a 70% loss from here. My point was that, if you haven't even bothered to look at the balance sheet, it is hard to take your opinions seriously. Link to comment Share on other sites More sharing options...
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