What Does LendingClub's Deal With Citi Mean?

In a report published Thursday, Morgan Stanley analysts maintained an Equal-Weight rating on

, after the company announced the launch a $150mn community lending program to help

issue qualifying Community Reinvestment Act loans. According to the deal, which is to issue CRA loans to low and middle-income families, LendingClub will originate the loans and also sell them to a $150mn investment vehicle funded by investment firm Varadero (first loss position) and Citi (senior debt position). The company indicated that this structure provides a "win-win that benefits both LC (satisfied borrowers with lower rates) and Citi (ability to easily lend to a structure and satisfy CRA requirements)." "We see this investment structure as a de facto pilot program, which could lead to agreements with other large banks should it prove to be successful," the analysts said. LendingClub's guidance already reflects the impact of this partnership; therefore the deal does not "provide any incremental origination volume to our 2015 estimates," the analysts stated, while adding, "This is, however, a meaningful announcement given this is the first partnership between LC and a top 5 bank, and could signal a growing willingness among the incumbents to partner with LC in innovative ways."