What a week! Three major M&A deals that are re-shaping the consumer finance and FinTech sector. 

PeerIQ will be attending SFIG Vegas this Sunday through Wednesday. Drop us a note – we’d love to catch up and introduce you to our recent sales hire, Elena Korneeva.

Deal Why? Sector Impact
Morgan Stanley Buys E-Trade for $13 Bn      Press Release

  • Accelerates Morgan Stanley’s transition to a more balance sheet light business mix and more durable sources of revenue.
  • Combined platforms will have $3.1 Tn client assets, 8.2MM retail client relationships and accounts, and 4.6 MM stock plan participants.
  • Combination increases Wealth Management scale, fills product and service gaps through complementary offerings, and enhances digital capabilities; positions Morgan Stanley as a top player across all three channels: Financial Advisory, Workplace, and Self-Directed.

     The Real Deal

  • Growth – The storied white-shoe firm, is moving downmarket to acquire digitally-oriented retail customers.
  • Future-Proofing – Diversifies  from high-touch full-service HNW advisory, to a bet on the continued rise of digitally savvy self-service consumers.
  • Higher NIM/cheap deposits – $56 Bn(!!) in deposits.
  • ROE – the giveaway here is “balance sheet light”.
  • A gutsy and transformative deal, the largest such deal since the 2008 crisis, representing 15% of MS’s market cap.
  • MS has carved out a starkly different approach (see $1 Bn acquisition of Solaris). 
  • GS Marcus, by contrast,  is now an outlier on M&A, BAC, JPM, and all other banks have done transformative deals post criss (see WSJ for more).
  • MS has been descended from the HNW to retail before the acquisition of Discover Financial (since sold) or discount brokerage Dean Witter are good examples.
Lending Club & Radius Bank       Press Release

  • A digitally native marketplace bank at scale with the power to deliver an integrated customer experience, enabling consumers to both pay less when borrowing and earn more when saving.
  • Will dramatically enhance the resilience and earnings trajectory of our business.

     Real Deal

  • Funding costs & diversity – shift to deposits.
  • Faster than applying for a charter and comes with deposits.
  • Originating via Radius Bank charter will reduce fees to WebBank substantially.
  • Owning the Customer – LendingClub can deliver a full suite of services.
  • Challenger Bank – LendingClub can say they are already delivering the promise of challenger banks today.
  • The deal will take 12 to 15 months to close, but it is an expensive loss for Steel Partners-backed WebBank.
Ally Buys Card Works for $2.65 Bn      Press Release

  • “Evolution to be a full-service financial provider for our customers.”

     Real Deal

  • Ally has taken bold steps post spin-out of GM to transform into a full-service services firm.
  • We’d expect more deals and innovation to come.
  • Costs Ally 9% of equity.
  • Ally did a deal with Better Mortgage in 2019,  making it one of the first forward-looking banks to bet on mortgage. transformation.
  • Ally has steadily brought in and enhanced its leadership team at the CFO, Strategy, and other business levels.

Deep Dive into The Lending Club & Radis Deal

LendIt Co-Founder, Jason Jones, put it well (paraphrasing): LendingClub wanted to disrupt banking, become a bank, and has now bought a bank. It’s a smart move enabling LC to bypass the charter process.

What do we know?

  • Radius Bank is a Massachusetts chartered digital bank
    • Offerings: check deposit, bill pay, card management, and a personal financial management dashboard, as well as open APIs to offer “Banking-as-a-Service” (BaaS) functionality to leading FinTechs. 
    • FinTech Customers: Brex, Nerd Wallet, and others.
    • Profile: Has $1.2 Bn in deposits, $1.4 Bn in assets, $126 MM in bank equity capital, and ROE of 5.4%.
  • LendingClub must seek regulatory approval to modify Radius Bank charter to execute against its stated goals.
  • Deal price of $185 MM and a price-to-book ratio of 1.7.
  • Regulatory approval may take another 12 to 15 months.

What do we not know?

  • How exactly will LendingClub update the Radius Bank charter to enjoy Federal preemption?
  • Is LendingClub now in the “Banking-as-a-Service” business? This term was referenced in the press release, however, it’s hard to imagine LendingClub building a national consumer brand and also being a behind-the-scenes infrastructure provider.
    • What happens to Radius Bank’s legacy business? Will they continue to serve FinTechs such as Brex, MaxMyInterest, NerdWallet, Aspiration, etc., that have no connection to LC’s core mission?
  • Did LendingClub share its business plan with regulators and address Section 23A of the Federal Reserve Act (Lending to Affiliates)? Said another way, is there a clear path to LendingClub using the deposits of Radius Bank to fund LendingClub loans?
  • What are the initial new products that we should expect from LendingClub? (LendingClub plans to launch a bank savings account later this year.)

Ron Shevlin (Forbes) has a nice write-up if you’d like to dig in further, and Penny Crosman (American Banker) interviews LendingClub President, Steve Allocca, for addition.

Chart of the Week – FinTech and Bank Mergers on the Rise

Source: American Banker, PeerIQ, The Companies.

FinTech Financings are Heating up

FT Partners published the 2019 FinTech Almanac – a nice slide deck summarizing deal activity. Here are the highlights:

  • 2019 was the most active year ever for FinTech Financing, M&A, and IPOs
  • In 2019, there were over 100 financing rounds of $100 million or more, which is the most ever by a significant margin.
  • The two hottest areas of FinTech financing activity during the year were Challenger Banks and Real Estate Tech.
  • 35 Challenger Banks each raised $20 million+ in financing in 2019 across 14 countries (see more on Challenger Banks in FT Partners’ recently published in-depth report).
  • Five of the six largest FinTech M&A transactions ever happened in 2019.

BlackRock Continues to Embrace Alternatives

YieldStreet Creates New Fund with BlackRock as Sub-Adviser 

  • YieldStreet announced a partnership with the world’s biggest asset manager, BlackRock. 
  • The partnership is specifically with BlackRock’s Global Fixed Income Group. In the past, YieldStreet investors had to invest in individual deals, spanning unique assets from shipping containers to litigation finance.
  • YieldStreet has now created the YieldStreet Prism Fund, a closed-end fund which includes YieldStreet investments alongside corporate and sovereign debt managed by BlackRock.
  • According to the landing page, the fund targets a 7% distribution rate (dividends paid quarterly) and requires a $20,000 minimum investment. There is an option for limited liquidity within approximately 15 months and management fees are set at 1.5%.

PeerIQ New Hire!

Elena Korneeva
. Elena is a PeerIQ sales executive and is responsible for developing business opportunities. Elena brings her extensive experience in data analytics, business development, structured products banking, and portfolio structuring and management. Elena previously worked at Trepp and Credit Suisse. In her free time, Elena likes to snowboard and ride a bike.

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