Lending Club is scheduled to report results from its tumultuous second quarter on Monday, and the results aren't likely to be pretty.
The embattled marketplace lender, which uses an online portal to match investors with consumers seeking personal loans of $1,000 to $40,000, predicted in late June that its quarterly loan volume would fall by roughly one-third from the first quarter.
If that projection holds up, Lending Club's second-quarter loan originations will total approximately $1.8 billion, or slightly lower than they were during the same period a year earlier.
The big question going forward is how quickly can it reverse the damage.
The bulk of the second-quarter decline in lending likely came after founder and CEO Renaud Laplanche was abruptly ousted on May 9 following revelations that senior executives falsified data to make the loans look more attractive to investors.
Investors, including banks, have since soured on buying Lending Club's loans, forcing Lending Club to dial back its origination volume. Deprived of this much-needed revenue, the San Francisco company has been forced to cut 12% of its workforce.
"It seems like no one wants to be first back in," said Bob Ramsey, an analyst at FBR Capital Markets, referring to the banks that had emerged as large buyers of Lending Club loans.
Ramsey estimates that by late in the second quarter, loan volume at Lending Club was likely down by about two-thirds from the prior quarter.
The upshot is that during the third quarter, Lending Club finds itself in a bigger hole than the full-quarter results from April to June would suggest.
"I think it remains a very challenging environment in terms of loan demand," said Ramsey, who has a "market perform" rating on Lending Club.
Even before Laplanche's departure, some institutional investors were growing wary of marketplace lending, amid concerns about worsening credit and shrinking yields. For Lending Club, the events of early May made a difficult situation worse.
Lending Club has reportedly been in talks with various institutional investors about a deal that would provide a commitment to buy a large volume of the firm's loans. Investors are watching to see if Lending Club announces an agreement on Monday, and if so, what the terms of the deal are.
"If we don't see anything, I think people will be disappointed," Ramsey said.
So what can the company do to regain the trust of the large institutional loan buyers that fueled the firm's breakneck growth earlier this decade?
In June, new CEO Scott Sanborn told analysts, "We are determined — determined to win back your trust, determined to once again grow this company."
Lending Club long touted its transparency — the company's website allows investors to download data on all of the company's loans — but more recently it has faced scrutiny over the information that is not available to interested loan buyers.
The concerns about data transparency are affecting other marketplace lenders in addition to Lending Club. They have intensified in the wake of May 9, when Lending Club revealed that the dates on certain loans were falsified in order to fit them within a particular investor's buying criteria.
Some investors would like to have additional information about the underwriting practices of the loan platforms. They also want to see more data that would help them better understand the problems facing distressed borrowers.
"The data challenges mean it is very difficult for investors to evaluate risk," Ram Ahluwalia, the CEO of PeerIQ, an analytics firm, said in an email.
On Thursday, Lending Club completed a $105 million securitization with the investment bank Jefferies. Investors who buy the bonds will get the ability to make more thorough evaluation of their investments' performance than they could just using the data that Lending Club makes available on its website.
"You can always log in from anywhere and have access to the data," said Perry Rabhar, the CEO of dv01, which developed the technology that will be made available to buyers of the bonds.
Still, it remains to be seen whether greater transparency will be enough to entice institutional investors back into the market.
Ramsey said that Lending Club already offers more information to loan buyers than other platforms. "It just takes time to rebuild trust," he said.