IEG Holdings Corp.
(OTCQB: IEGH) Company Report
- This report offers an analysis of IEG Holdings Corp. (OTCQB: IEGH)
- IEG Holdings Corp. is a Las Vegas, Nevada-based holding company that has a core focus of offering online unsecured consumer loans up to $10,000 through its Mr. Amazing Loans subsidiary. The lender is licensed to operate across 20 U.S. states.
- The company recently announced plans to create its own IEGH cryptocurrency and blockchain technology.
- IEG Holdings Corp. is currently negotiating the purchase of a gold mining project with feasibility reports supporting strong gold deposits. The company will back its own cryptocurrency up with the gold from this mining project.
- The holding company recently launched a tender offer for up to 4.99% of LendingClub Corp., a peer-to-peer, crowdfunding platform for individuals.
- The company continues to post strong earnings growth on an annual basis. Total revenues have more than tripled since full year 2014.
- IEG Holdings Corp. continues to position for long-term growth within consumer loans, cryptocurrency, and other financial services holdings
IEG Holdings Corp. (OTCQB: IEGH):
Introduction to IEG Holdings Corp.
IEG Holdings Corp. is a Las Vegas, NV-based holding company that is engaged within the consumer loans, cryptocurrency/blockchain, and financial services industries. The company’s core is its Mr. Amazing Loans subsidiary. Mr. Amazing Loans is an online, unsecured consumer loans provider that is able to lend up to $10,000 across 20 U.S. states. IEG Holdings Corp.’s latest addition is its cryptocurrency subsidiary, which will allow the company to accept cryptocurrencies as a form of loan payment. Furthermore, IEG Holdings Corp. is currently preparing to launch its own cryptocurrency, which will be backed by physical gold and proper SEC registration.
The company is fully-reporting on the OTCQB Venture Market, which is much more prestigious that the OTC Pink Markets. IEG Holdings Corp. first obtained OTCQB status back in June 2015 and even was listed on the top market for OTC Markets Group, the OTCQX market. However, the company ultimately remained at the OTCQB due to resignation of two directors back in March 2016.
Exhibit One – The Explosion In Cryptocurrencies
Source: Visualcapitalist.com 1
As of January 2018, IEG Holdings Corp. has a market cap valuation of $4.98 million and maintains a share structure consisting of 300 million authorized shares, 12.3 million outstanding shares and a float of 5.43 million shares.
Over the past month, IEG Holdings Corp. has seen its stock rally from lows of around $0.20 per share to a high of $1.19. The renewed interest comes as the company released further details on its new cryptocurrency and blockchain subsidiary.
Cryptocurrency is one of the hottest industries in the global business environment right now, as the Bitcoin and altcoin revolution continues to go mainstream. A growing number of people see the current cryptocurrency environment as only scratching the surface of its true potential. While global government crackdown may be a temporary roadblock, the markets continue to remain resilient.
According to a recent market research report published by MarketandMarkets, the global cryptocurrency market is forecast to grow from $541 million in 2017 to $2.9 billion by 2023. This represents a compound annual growth rate (CAGR) of 32.31% during that time period.
IEG Holdings Corp. is in a great position to benefit from the massive projected growth within the cryptocurrency markets. Furthermore, as the IEG Holdings Corp. diversifies its holdings, the company will not be as vulnerable as other cryptocurrency companies during downturns in the market.
Cryptocurrencies – A Background
Cryptocurrencies are a relatively new digital asset that came into being with the launch of Bitcoin back in 2008. Unlike fiat currency, which is backed by governments and their central banks, cryptocurrencies do not have a central authority. This allows a decentralized, alternative currency to exist that is freer from open manipulation by a central authority.
Over the past decade, the global economic system has seen a massive increase in countries engaging in “currency wars” in order to achieve an advantage in the world’s trade flow. China is largely seen as the “poster child” and infamous leader in the global currency manipulation movement, as several questionable re-valuations of the Yuan seem to continuously undercut the U.S. dollar. This ultimately provides greater benefits to Chinese companies at the expense of U.S. enterprises.
Exhibit Two – Breakdown Of Primary Participants Of Cryptocurrency Market
The increase in government currency manipulation has been a key driving force behind the rise in popularity of decentralized assets that can be used a medium of exchange, without the concern that one party is receiving an unfair advantage. Admittedly, the cryptocurrency movement certainly has risks and uncertainty attached, but the concept behind blockchain and crypto is sound and will only continue to infiltrate our lives as time passes.
How Do Cryptocurrencies Work?
Complex source codes and technical applications help secure cryptocurrencies on their own blockchain, which is a master ledger that essentially records and stores all transaction information, activity, ownership validation, and more.
Copies of each cryptocurrency’s blockchain are stored across its network, which allows coders and highly-skilled technology developers to use an ecosystem of decentralized server farms to help authenticate transactions and records. This is a process known as mining.
The blockchain helps prevent manipulation, but is also limited in its ability to complete refunds or reverse transactions. However, the latest blockchain developments show that this an issue that will be fixed in the near future.
Exhibit Three – Visual Of Cryptocurrencies Ecosystem
Source: BlockGeeks 1
Every cryptocurrency user has their own unique private key that acts as an authentication and security feature for spending and converting their holdings. This is an essential part of maintaining security, but if the private key is lost then the assets are lost forever. Cryptocurrency “wallets” are another security feature that help deter hackers from being able to steal your digital assets. There are many different types of wallets (cold storage, web, mobile, cloud, hardware, paper, etc.), but not all are created equal.
Overall, cryptocurrencies and blockchain technology are still in the very early stages. We are only just beginning to scratch the surface of their capabilities, similar to Microsoft and Apple back in the 1980s. Yes, early computers were rather limited and certainly drew doubts and criticism of ability to be scalable, but look where computing is today in 2018. The point is that dismissing cryptocurrencies at such an early stage may be a mistake that is more rooted in misinformation and not understanding, rather than true belief that the concept is a failure.
The IEG Holdings Cryptocurrency
IEG Holdings Corp. announced plans to create its own cryptocurrency and blockchain network on January 10, 2018. In addition, the company formed a new subsidiary, Investment Evolution Crypto, LLC, to house its new blockchain endeavors. However, IEG Holdings Corp. is going above and beyond for its own cryptocurrency, which provides an advantage over some of the major coins out there. The company is currently negotiating the purchase of a gold project that contains proven reserves of gold in the ground. Using this gold and its prospecting licenses, IEG Holdings Corp. plans to become one of the first cryptocurrencies to be backed by physical gold. Management has also stated that it plans to have its cryptocurrency registered with the SEC as a security and in full compliance with regulations.
IEG Holdings Corp. Chairman and Chief Executive Officer, Paul Mathieson: “Unlike Bitcoin, Ripple, Ethereum and Litecoin etc., IEGH’s crypto currency is planned to be backed by gold metal and registered with the SEC as a security. We believe potentially combining the exciting new blockchain technology with the hard asset of gold metal, expected SEC registration, a leading sophisticated online consumer finance system and individual US state lending licenses is a very exciting proposition. In addition, we believe the future leaders of the crypto/blockchain sector will be companies that are materially compliant with all the existing and future related US government legislation. We aim for IEGH to leverage off its existing fintech business credentials, specifically its extensive experience in online consumer loans, to potentially be a key player in the crypto/blockchain sector.”
Overall, IEG Holding Corp.’s move into cryptocurrency appears to be intriguing, based on the fact that management is coming at the concept from a unique angle. The cryptocurrency subsidiary is a welcoming addition and diversification to the company’s core portfolio.
Core Holding: Mr. Amazing Loans
The company’s core holding is its consumer lending business, Mr. Amazing Loans. The consumer finance company specializes in unsecured loans and offers $5,000 and $10,000 personal loans with a five-year term. Mr. Amazing Loans is licensed to operates across 20 states: Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia, and Wisconsin.
Management has effectively executed on its business plan to create a scalable, online loan origination platform, which has resulted in an impressive increase in its loan portfolio growth. IEG Holdings Corp. is continuing to focus on expanding into additional states by obtaining necessary licensing. Over the intermediate term, management plans on expanding into five additional states in order to cover around 75% of the US population.
According to a recent TransUnion report, the credit reporting agency sees the strong rebound in unsecured personal loans to continue in 2018. “The fact that originations are skewing toward lower-risk consumers bodes well for the overall delinquency rate, and is especially important as consumer debt per borrower is expected to extend to nearly $8,500. This is significant considering that it would prove to be a 35% increase from levels seen just a few years ago at the end of 2013,” details Jason Laky, TransUnion Senior Vice President.
Exhibit Four – Personal Loan Delinquency Rates/Average Loan Size Per Borrower
Source: TransUnion 1
The strong growth forecast comes despite a rising interest rate environment. In addition, as banks and credit unions increasingly enter the unsecured consumer loans market, this should lead to further loan volume and balance growth. FinTech companies continue to hold a massive market share of the unsecured personal loan market, which will look to continue competing with any newcomers.
Mr. Amazing Loans saw loan originations decline during the first half of 2017, as the company reported $285,000 for the first six months of 2017 compared to $2.33 million from same period in 2016. Most of the loan origination declines were due to the company’s cost cutting initiative, which saw significant slash to advertising and marketing efforts. However, loan volume began to surge in the back-half of 2017. As of September 30, 2017, the company saw cumulative loan volume of $15.25 million, which was growth of 11% from the same period in 2016.
For the remainder of 2017, Mr. Amazing Loans originated an additional $960,000 in new loans. This gave the company total 2017 loan volume of $16.21 million, which is an increase of 192% since January 2015.
As the overall growth in the unsecured personal loans industry continues, Mr. Amazing Loans is positioned to continue seeing strong loan volume. The company’s intuitive, user-friendly, and competitive online platform is a major draw for potential customers.
LendingClub Corp. Tender Offer
On January 5, 2018, IEG Holdings Corp. announced that it had launched a tender offer to acquire up to 20,701,999 shares or 4.99% of LendingClub Corp. Under the terms of the proposed deal, 13 shares of IEG Holdings would be exchanged for each share of LendingClub Corp. common stock, up to the limit noted.
Paul Mathieson, Chairman and CEO of IEG Holdings, said “We ask LendingClub shareholders to consider whether they wish to move forward with an improved online balance sheet lender model aimed at the future or continue to support what we believe to be a flawed ‘broker’ business model. Weak underwriting standards, tiny gross margins and large, continuing losses is a recipe for disaster.”
Exhibit Five – Price-to-Book Ratios of Top U.S. Lenders
Source: Fundamental Research Corp. 1
In a letter to LendingClub’s management, IEG Holdings highlights the fact that LendingCub has originated over $26 billion in loans since inception, yet still managed to report a loss of $61.80 million loss for the first nine months of 2017. Management notes weak underwriting standards, a failing “broker” model, dwindling margins, and continued losses. Ultimately, IEG Holdings does not see LendingClub ever achieving profitability under its current business model.
IEG Holdings Corp. believes they can turn LendingClub’s misfortunes around with a move to a balance sheet lender business model, as this would increase gross margins, long duration cash flow, and increased customer loyalty/goodwill. The company also intends on encouraging LendingClub to engage in sweeping cost cuts to unnecessary and wasteful spending. Furthermore, the company will encourage and assist LendingClub in exploring cryptocurrency and blockchain opportunities.
OneMain Holdings Tender Offer
The LendingClub Corp. tender offer seems to be following a similar playbook at IEG Holding Corp.’s tender offer with OneMain Holdings, Inc. in early 2017. On January 6, 2017, IEG Holdings Corp. announced a tender offer of up to all the outstanding shares of OneMain Holdings, Inc., one of the largest consumer finance companies within the United States.
In June 2017, IEG Holdings closed the offer after purchasing 151,994 shares of OneMain Holdings in exchange for 3.04 million shares of IEGH. IEG Holdings Corp. has since liquidated its position in OneMain Holdings, which generated $3.4 million for the company.
IEG management saw an opportunity to potentially create a combined entity that could benefit from significant synergies and cutting costs by converting OneMain’s brick-and-mortar model into an online business model. Ultimately, IEG Holdings was not able to fully acquire OneMain, but the company did generate some decent cash flow from the deal.
Status of IEG Holdings Corp.
Overall, IEG Holdings Corp. continues to execute on its vision to expand its loan volume and market share of the unsecured personal loan market. The company’s Mr. Amazing Loans subsidiary has seen a very strong uptick in loan origination and is positioned to continue benefitting from overall strength in the industry trends.
Exhibit Six – Industry Comparables Zacks Research
Source: Zacks Research 1
IEG Holdings Corp. has launched another tender offer for up to 4.99% of LendingClub, which has yet to be confirmed or denied by the company. Management sees opportunities to revive LendingClub through extensive cost cutting measures, switching to balance sheet lender model, and focusing on blockchain solutions.
The company’s cryptocurrency initiative is a great diversification away from personal loans and allows potential to capitalize on “crypto fever.” Furthermore, management continues to prepare to have its cryptocurrency fully compliant with SEC regulation. If the vision succeeds, IEGH will have the first gold-backed cryptocurrencies on the market.
The Balance Sheet and Income Statement
As of the end of the third quarter 2017, IEG Holdings Corp. reported cash and cash equivalents of $1.85 million, net receivables of $5.05 million, and other current asset of $30,000 for a total current asset reading of $6.93 million. IEG Holdings Corp. reported land, plant, and equipment assets of $14,000 and other assets of $13,000 to bring the company’s total assets to $6.95 million.
Turning to liabilities, IEG Holdings Corp. reported accounts payable of $158,000 and other current liabilities of $63,000 for a total liability count of $221,000. In shareholders’ equity, IED Holdings holds $2.24 in common stock, retained earnings of ($28.36 million), and $32.86 million in capital surplus. This equates to a total shareholders’ equity of $6.73 million, as of September 30, 2017.
Please see Exhibit Seven below for the September 30, 2017 balance sheet.
Exhibit Seven – Balance Sheet From Sept., 30, 2017
Source: OTC Markets 1
As you can see, IEG Holdings Corp. maintains a very strong balance sheet that is loaded with assets, while minimizes liabilities. This lean structure will continue to allow the company to see stronger earnings growth. Note that the company does not hold any debt on its balance sheet, which is quite unusual for a company listed on OTC Markets. Management is effectively utilizing the company’s assets to continue building assets, while cutting costs and liabilities.
Please see Exhibit Eight below for IEG Holdings’s income statement for the quarter ending September 30, 2017.
Exhibit Eight – Income Statement From Sept., 30, 2017
Source: OTC Markets 2
During the third quarter 2017, IEG Holdings Corp. reported total and gross revenue of $407,000. In operating expenses, IEG Holdings Corp. reported sales, general and administration costs of $623,000 and other expenses of $1,000. Overall, the company reported operating loss of $1.07 million and a net loss of $1.70 million, during the third quarter.
Management Team and Board Members
Paul Mathieson (Founder, Executive Chairman & CEO):
Mr. Mathieson has served as the Chief Executive Officer and member of our board of directors since 2012 and a member of the board of directors of our subsidiary since 2009. In 2005, Mr. Mathieson founded IEG Holdings Limited in Sydney, Australia which launched the Amazing Loans business in Australia in 2005 and the Mr. Amazing Loans business in the United States via IEGC in 2010. In recognition of IEG Holdings Limited’s success, Mr. Mathieson was awarded Ernst & Young’s 2007 Australian Young Entrepreneur of the Year (Eastern Region). Mr. Mathieson has over 19 years finance industry experience in lending, funds management, stock market research and investment banking. His career has included positions as Financial Analyst/Institutional Dealer with Daiwa Securities from 1995 to 1995, Head of Research for Hogan & Partners from 1995 to 2000, and Stockbroker and Investment Banking Associate with ING Barings from 2000 to 2001. In addition, from 2002 to 2010, Mr. Mathieson was the Founder and Managing Director of IE Portfolio Warrants, a funds management business that offered high return and leveraged structured Australian equities products. Mr. Mathieson received a Bachelor of Commerce from Bond University, Queensland, Australia in 1994 and a Master’s Degree of Applied Finance from Macquarie University, New South Wales, Australia in 2000.
Carla Cholewinski (Chief Operating Officer):
Ms. Cholewinski has served as our Chief Operating Officer since 2008 and has over 37 years’ experience in the finance industry including banking, credit union management, regulatory oversight, debt securitization and underwriting. Her career has included positions as Vice President and Branch Manager at Glendale Federal Bank from 1976 to 1986, Vice President and District Sales and Lending Manager with California Federal Bank from 1986 to 1992, Mortgage Banker with First Choice Financial Services from 1992 to 1995, Corporate Vice President of Lending and Collections with WesStar Credit Union from 1995 to 1999, Chief Lending Officer for American Corp & Funding from 1999 to 2000, Chief Credit Officer for Security State Savings Bank from 2000 to 2004, and Chief Credit Officer for Fifth Street Bank from 2004 to 2008. Since 2008, Ms. Cholewinski has served as our Chief Operating Officer and Chief Credit Officer and has utilized her extensive finance, banking and regulatory experience to grow the business from initial launch to our current level of operations.