Is the integration of two lenders a difficult job? In the case of the OneMain and Springleaf merger, it seems to have been. Unfortunately, company officials did not adequately support the process, the complaint says, and its concealment of the problems plus unrealistic guidance were violations of the Securities Exchange Act of 1934.
The class for this action is all buyers of the common stock of OneMain between February 25, 2016 and November 7, 2016.
Formerly, OneMain was a company that focused on unsecured lending. In November 2015, it was taken over by a smaller entity, Springleaf, which focused on secured personal lending. After the merger, the company’s officers made positive statements about the integration of the new, combined OneMain, but the complaint claims that these statements were misleading because the two companies were very different in terms of operating procedures, underwriting standards, pricing, systems, and cultures.
Although the old OneMain had been the larger company, the integration process involved changing its branches underwriting process to put it in line with Springleaf’s. The first problem, the complaint claims, was that they could no longer use the old Symphony platform to tell them whether a loan should be approved or not; they had to go through a second layer of review to see if the loan met Springleaf’s underwriting standards. This led to a decrease in productivity at the OneMain branches.
Springleaf also wanted loans to be secured by collateral, the complaint says, although OneMain’s typical customers generally did not have collateral—a move that again lowered productivity.
Another problem, the complaint claims, was that Springleaf had forbidden the use of certain tools OneMain branches had been using, and this led to a rise in delinquencies, again leading to lower performance.
In September 2016, the company was changing OneMain branches from the Symphony platform to Springleaf’s Class platform, but the complaint claims that it did not provide adequate training and support during the transition. To make matters worse, the complaint claims that as of March of that year, the company had been laying off experienced workers and managers from the old OneMain company.
According to the complaint, however, the company claimed that everything was going well, saying, for example, that Springleaf’s focus on secured lending fit well with OneMain’s customer base and that employees from the old OneMain were embracing secured lending. They claimed that the company was on track to make the earnings guidance for 2016 and 2017.
Only at the close of the class period, on November 7, 2016, did investors learn of the problems in things like lower productivity and higher delinquency, the complaint says, at which point the company cut its guidance for 2016 by 18% and 2017 by 36%. At this news, the company’s stock price dropped by 38%.