Saturday, February 24, 2024 9:00 a.m.
In recent months, a series of British challenger banks have made headlines with grand plans to compete with mainstream rivals on the London Stock Exchange. But business owners aiming for an IPO have a lot to worry about.
Who are the players?
Companies that have announced plans to go public include unicorn Starling, fintech financial firm Zopa and app-based Atom.
Starling had previously considered listing in 2022 and 2023, but those plans were put on hold after founder Anne Borden resigned as CEO in June last year. .
Monzo, City AM It is understood that it is close to a funding round that would value it at around £4bn, making it another expected candidate.
Chief Executive Officer TS Anil has hinted that it would go public at some point, but has remained tight-lipped about when or where. I am concerned that it will disrespect the exchange. It is expanding rapidly. The bank did not respond to requests for comment.
Fellow digital-only unicorn OakNorth is also considering an IPO, including listing on multiple exchanges to access a wider range of investors.
Durham-based Atom Bank had previously shelved its float plans until 2024 or 2025, citing volatile market conditions. CEO Mark Mullen, who declined to comment this week, said: City AM Last year we predicted that London would be the “natural” destination for a listing.
The owners of specialist bank Shawbrook are reportedly exploring a new IPO for the company after plans for a major £2bn listing fell through two years ago. Mr. Shawbrook declined to comment.
A Zopa spokesperson said the company still plans to list in London, but would “await appropriate macroeconomic and market conditions”.
tough market
The LSE has not rewarded mainstream banking stocks, even though big financial institutions have made huge profits on the back of rising interest rates.
The FTSE All-Share Bank Index has fallen more than 9% in the last year, with analysts citing economic uncertainty, peak profitability, pressure on margins and a public image that has not fully recovered from the financial crisis. listed.
Robert Sage, an analyst at Peel Hunt, an investment bank that helps large companies prepare to go public, said there is “significant pent-up demand” among IPO challengers.
He added: “The problem over the past few years has been a lack of market acceptance and low valuations for UK listed banks. The difference between public and private market valuations has become extreme.”
Funding for challenger banks peaked in 2021 after a boom during the COVID-19 pandemic, with companies such as Starling, Atom and Revolut, which is currently seeking a UK banking license, Big banks have since suffered valuation cuts.
Consolidation fears also loom large in the fintech and mid-sized banking sectors, with analysts predicting a wave of acquisitions and partnerships as funding costs rise and some companies become flush with cash. ing.
“You don’t have to go all the way to New York.”
There is a huge gap between London and New York bank stocks. Data released last month by Boston Consulting Group showed that 73% of European banks were trading below book value, compared with just 37% of U.S. banks.
But the British challengers have no intention of simply setting up shop across the pond. Sage said there is a perception among investors that the company is too small to attract international attention.
“While not impossible, getting U.S. investors on board requires very strong differentiators, and simply being a bank or a technology-driven bank is often not enough.” he said.
“The advice from brokers is you don’t have to go all the way to New York,” said the FTSE 250 bank executive. City AM
“If you’re an international investor, you’re thinking, ‘Britain is really slow, growth is weak, they’ve pulled out of Europe.’ And if I invested somewhere in there, Is it really going to be a bank?”
He added that he is not currently seeking to take his company public, nor does he have any intention of starting a challenger bank.
Nick Fahey, CEO of small and medium-sized company-focused Synergy Bank, said there were “structural issues” in how the stock market values challengers.
“We have many future possibilities, and IPO is one of them. But there is no IPO market at the moment and it is probably unlikely to come back in the next few years,” he said. .
“The problem for challenger banks is that FTSE doesn’t reward them properly. Companies think we’re endowment stocks, and we’re not.”
The CEO of another challenger said he did not expect the British bank to do an IPO in 2024.
“I think what people are doing is taking a stance,” he says. “There are two reasons why you’re saying you’re going to IPO. One is that all the investment bankers are going to be clamoring around you to get the best deal.
“Second, if you get an opportunity and say you’re going to do an IPO, and it’s an interesting asset, a strategic investor might be the first to buy you.”
Analysts expect bank stocks to recover as the overall economy improves, with Sage calling neobanks “particularly those with credible growth prospects, strong financing capabilities, advanced technology platforms, and a track record of profitability.” We predict strong investor appetite for banks.