UK digital bank Revolut has filed papers with the FDIC and Californian authorities starting the process for a full US banking licence. The company has shown strong revenue growth but like many of its competitors this has not translated into profitability yet. The company has already obtained authorisation in the EU. The company has a clear strategic goal of becoming the worlds leading app. Bank. I wish them luck but cannot help but feel that in today’s environment ie interest rates at near zero it will be tough going. Operating in multiple regulatory environments will not be easy and very expensive in the short term. At the same time JP Morgan’s digital offering has just started to play in the space. Two things strike me. Firstly that digital offerings in the US seem to struggle for some unknown reason maybe just old fashioned conservatism and secondly JP Morgan can play a long game and has deep pockets!
This story demonstrates how acting hastily can mean a lot of explaining to do down the road. The Bank of England’s COVID Corporate Financing Facility was intended to help larger companies support their businesses when the lending markets dried up. Under this scheme the bank bought short date commercial paper from companies directly. Whether or not the money was in fact used for that purpose is not known. Nor indeed are the terms of the issuance. In any case the scheme has now closed and there are significant amounts still outstanding. Some of the borrowers are in the hardest hit industry sectors, Airlines, Brewers and even Premiership football clubs are prominent. A replacement scheme known as the Recovery loan scheme has not surfaced, yet so many companies are presumably working on plan B or hoping for a more bespoke offering to emerge. Once again however the lack of transparency in government actions, not just in the financial sector but also across the public health issues is just not there. Future political problems are stacking up by the day.
The Times article focuses more on the immediate problem that we are seeing with Greensill and the British Steel industry. Martin Vander Weyer writing in the Spectator of 20th. March points to the collapse of Greensill as perhaps the tip of a very large iceberg. He draws comparisons between the collapse of AIG in 2008 being the catalyst for the wreckage caused by the sub prime catastrophe and the fact that the major cause of Greensill’s woes concerned the cancellation of trade credit insurance by Tokio Marine. The global shadow banking sector of which Greensill is one small piece is largely unregulated and the overall size of the market is unknown. The impact on similar businesses and investor support is similarly opaque. This story is going to run but as to the outcome nobody knows.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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