FinTech: LendingClub Is The First Fintech To Acquire a Bank
LendingClub acquires online bank Radius Bancorp for $185 million.
Personal lending platform LendingClub has agreed to acquire FDIC-regulated, Boston-based online bank Radius Bancorp in a cash (75%)-cum-stock (25%) deal worth $185 million. This is the first time that a US fintech has bought up a bank. (PYMNTS.com)
LendingClub Corporation (NYSE:LC) is America’s largest lending platform linking up borrowers with investors, a so-called fintech marketplace. It arranged more than $12.3 billion in loans in 2019 for its three million members.
Included in the purchase is Radius Bancorp’s wholly-owned subsidiary Radius Bank, voted as the best online bank.
Radius has $1.4 billion in assets.
“This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems and where the success of LendingClub is aligned with the success of our customers,” said Scott Sanborn, CEO of LendingClub in a statement. “By combining with Radius, we will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business.”
In LendingClub’s earnings call on Tuesday, Sanborn said the transaction will create “the world’s first marketplace bank.”
The rationale for the transaction
Here are the factors working in favor of the acquisition:
- Two sides of a bank balance sheet at scale: LendingClub = asset generation platform and Radius = deposit gathering platform (This “totally changes the earnings profile of the business,” Sanborn said to CNBC)
- Radius has a national footprint and no legacy branch network
- Radius is already a partner of choice for fintech leaders such as Brex, NerdWallet, and NorthOne
- Deposits are a new funding source for LC
- LC investors get the comfort of a regulatory framework
- Savings in fees and interest earned by LendingClub’s current issuing bank partners
- Reduction in cost of funds by approximately 220 basis points
- Diversification in revenue
- Significant synergies
- Enhancement of earnings power
- Cash payback on the premium and all acquisition costs in about two years
Furthermore, Shanda, the largest shareholder in LendingClub, will exchange all its voting common stock to non-voting stock. For this exchange, Shanda will receive a payment of $50.2 million.
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