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Update: Upstart Holdings & Cross River Bank

June 2, 2022 | Back in June of 2021, we noted that the nonbank lending platform Upstart Holdings (UPST) was not so new after all. The originate to sell model crafted by this band of former Google employees had the same risk characteristics as the non-banks that caused the 2008 crisis, namely exposure to market risk. The fact of UPST using “AI” to make lending decisions only made us more skeptical given our experience in the world of decision engineering for loan underwriting. "AI" is simulated cognition, not intelligence.


Wind the clock forward 12 months and our worst fears have been realized. UPST is in the tank in terms of the equity market value, down 65% in the past year due to the changes in the credit markets. More, a growing crowd of trial lawyers are suing the company for securities fraud. Yet the company's earnings are up compared to Q1 2021. What's the problem? The table below comes from the most recent UPST earnings report.



After restating financials and moving loans from “held for investment” to “available for sale,” UPST recorded a negative $19 million fair value mark and essentially had to come clean about warehousing loans on balance sheet. Has the originate-to-sell model that seemed to allow UPST print money and pass the risk on to "partner" banks become extinct? And, please tell us, why are the CSUITE at UPST providing forward guidance to the Street?

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