Korea insurer buys shares in Lending Club, sees P2P loans as new alternative

Oct 19, 2016 (Gmt+09:00)

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South Korea’s Hanwha Life Insurance Co. Ltd. has bought a 4.1% stake in U.S. Lending Club Corp., the world’s largest peer-to-peer (P2P) lender, for around 75 billion won ($67 million) in the market, as it is seeking to develop P2P loans as a new alternative asset class and break into the nascent fintech market.

The life insurer started buying shares in Lending Club listed on the New York stock exchange from June, company sources said on Oct. 17. With the share purchase, Hanwha Life has also entered into a strategic alliance with the U.S. lending company which offers an online platform to match borrowers directly with a pool of borrowers.

Hanwha Life and Hanwha Asset Management Co. Ltd. will make a pilot investment in loans originated by Lending Club this year. The San Francisco-based lender had $20.7 billion in loans at the end of June. According to its website, its notes with grades A through C, backed by underlying loans, generate projected annual returns between 5% and 8% as of end-July.

If the investment proves successful, the Hanwha Group units will increase purchases of loans from the U.S. lender, drawing other institutional investors such as the National Pension Service, savings fund and insurers. The sources declined to disclose the value of its planned purchase.

“Lending Club’s 2P loans have high credit quality. Their securitized products, asset-backed securities, may obtain AAA from ratings agencies,” said a Hanwha Life source. “Given their risk-adjusted returns of 4~5% a year, they are high-yielding investment assets.”

While P2P lending is restricted to transactions between individuals in South Korea, institutional investors in the United States are allowed to invest in P2P loans. The equity investment in Lending Club was part of Hanwha’s efforts to take a bigger share of big data and financial technology areas over the long term. Its traditional insurance business faces a margin squeeze due to historically-low interest rates.

The share purchase also came after Lending Club shares had plummeted, battered by investigations into its lending practices and the subsequent resignation of its founder and then CEO in May. Its current share price, $5 per share, is just a third of its IPO price.

Singapore-based private investment firm Shanda Group has a 15.1% stake in Lending Club, followed by venture capital firm Sands Capital with 10% and Morgan Stanley with 9%.

Hanwha Life had 81 trillion won in assets at end-July, of which 17.5 trillion won were put into loans. Last February, the South Korean insurer established a joint venture in Singapore with Dianrong.com, a Chinese P2P lender launched by Lending Club co-founder Soul Htite.

By Chang Jae Yoo and JiHoon Lee

yoocool@hankyung.com