Happy Memorial Day Weekend.
This week, we cover the economic recovery, Senators launching a caucus on financial innovation, SPACs developments, and big bank CEOs facing questions from the Senate Banking Committee.
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Signs of Price Spikes; (But Don’t Worry, the Fed Says)
New claims for unemployment hit a 14-month low last week, falling 38,000 to a seasonally adjusted 406,000 initial claims for benefits.
We believe employment numbers will continue to improve; more than 10 million Americans remain on the unemployment rolls, despite continued labor shortages.
The economy reopening, barriers returning to work receding (like uncertain child care arrangements and health fears), should all positively contribute to employment numbers.
The first quarter GDP grew at the fastest rate since the third quarter of 2003 and worries about inflation persist. For instance, auto and home insurance premiums are under pressure, driven by supply chain disruptions to critical components like computer chips, lumber, and even rental cars.
Fed officials are not worried yet, saying they wouldn’t be surprised to see above trend inflation in the coming months, but they believe it will be transitory. We continue to be cautiously optimistic as well.
Bipartisan Group of Senators Launch Financial Innovation Caucus
Co-Chairs US Sens. Cynthia Lummis (R-WY) and Kyrsten Sinema (D-AZ) launched the US Senate Financial Innovation Caucus this week, joined by five additional Senators from both sides of the aisle.
According to Lummis and Sinema, the goal of the caucus is to foster responsible innovation in the US financial system and encourage financial technology that makes markets more inclusive, safe, and prosperous for all Americans. The caucus will serve as a venue to discuss global financial technology issues and to craft legislation focused on empowering innovators, protecting consumers, and guiding regulators. Focus areas will include distributed ledger technology (blockchain), digital assets, AI, combating money laundering, faster payments, central bank digital currencies (CBDCs), and promoting financial inclusion.
We welcome the news, especially in light of last week’s Senate repeal of the true lender rule, which was supported by both Lummis and Sinema. We welcome the announcement as a sign that the Senate understands and supports the potential for technology and innovation in financial services. We hope the effort will lead to a nuanced approach that distinguishes predatory debt traps from responsible players.
SEC SPAC Under Scrutiny, NASDAQ Permits Direct Listings to Raise Capital
Companies looking to go public have never had more routes to do so — but the pros and cons of choosing a path to the public market are in flux.
This week, recently confirmed SEC Chair Gary Gensler told a House committee that his staff is working on new guidelines governing SPACs. Gensler’s concern centers around if current structure and disclosures adequately protect investors. Despite increasing scrutiny, SPACs remain a viable route to the public market, with Acorns announcing this week a deal valuing the investing startup at about $2.2 billion.
If the SPAC trend is in question, the appeal of direct listings may be improving. While startups like Spotify and Coinbase have used direct listings to go public, such a move historically provides shareholders with liquidity without raising new capital. That’s about to change, with the SEC approving a proposed rule change from NASDAQ to allow companies to raise funds as part of a direct listing, avoiding the typical IPO process.
We welcome regulation that enhances companies’ ability to raise capital in the public markets while protecting investors by ensuring they have access to sufficient, reliable information.
Bank Net Income Up Despite Shrinking Loan Books
Data released by the FDIC presents a rosy picture for the net income statements of banks. Commercial banks and savings institutions reported aggregate net income of $76.8Bn in the first quarter of 2021, an increase of $58.3Bn (+315.3%) from the same quarter a year ago, driven primarily by the release of loan loss reserves.
Net interest margin didn’t fare as well, contracting 57 bps from a year prior to 2.56%, the lowest on record.
Total loan and lease volumes continued to decline, down $136.3Bn (-1.2%) from the year prior, driven primarily by reduced commercial and industrial loans (-12.8%) and shrinking consumer credit card balances (-3.7%) as consumers continued to deleverge. The overall trend impacted the big banks across the board, while community banks saw a 10.8% increase in loan balances vs. the year prior, driven primarily by loans originated through the Paycheck Protection Program.
Major bank CEOs testifying in front of the Senate Banking Committee came in for criticism for the reduction in lending from Committee Chair Sherrod Brown, but argued it was driven by reduced demand due to COVID-related stimulus for consumers and small business.
As the economy returns to normal, we expect banks to make moves to loosen credit policy and expand their loan books.
Reach out to firstname.lastname@example.org if you want to track fintech originations trends. PeerIQ has built the best-in-class analytics platform to support originators and banks grow their loan books with ease and confidence.
Figure Raises $200MM at $3.2Bn Valuation
Figure Technologies, the blockchain-focused financial services firm founded by SoFI founder Mike Cagney, announced it has raised a $200MM Series D at a $3.2Bn valuation.
The raise followed last week’s SEC approval to use its Provenance blockchain to bundle mortgage and student loans into securities for sale to investors.
Figure is in the process of applying for a national bank charter and plans to use the funds to continue the development of its blockchain technology to provide equity management, loan origination, payment, banking, and private fund services.
Affirm Spinout Resolve Raises $60MM for B2B BNPL
Resolve, a firm spunout of recently IPO’d Affirm, announced it has raised $60MM, its first equity raise as an independent company. Resolve focuses on providing buy now, pay later solutions for B2B transactions.
Resolve offers purchasing companies extended payment terms from 30 to 90 days without interest or fees, if repaid at agreed upon terms; merchants receive full payment upfront (less any fees to Resolve) as soon as an order is placed.
We expect BNPL to continue to enjoy strong momentum across categories and geographies, with players from startups like Amount to giants like PayPal doubling down on.
In the News
- The Economy Is Booming. Why Don’t Firms Believe It? (Bloomberg, 05/24/2021) Despite strong consumption numbers, many firms don’t trust the boom to last.
- Square Takes Aim at JPMorgan With Checking, Savings Accounts (Bloomberg, 05/24/2021) Fresh off its approval for a bank charter, Square quietly prepares to offer checking and savings accounts to its customers.
- Central Banks Face New Balancing Act With Their Huge Asset Piles (Bloomberg, 05/26/2021) Unwinding the trillions of dollars spent on quantitative easing could take decades.
- Aspiration, Backed by DiCaprio and Orlando Bloom, Weighs an IPO (Bloomberg, 05/24/2021) Financial management and banking services company aims to capitalize on the rise in ESG investments with a public offering.
- U.S. Senate Banking Chair Plans Interest-Rate Cap Bill as he Turns Up Heat on Lenders (Reuters, 05/25/2021) Payday’s heyday to end? Bill to cap national interest rates at 36%.
- Berlin’s Trade Republic Nabs $900M Led by Sequoia at a $5B+ Valuation to Take its Neobroker App Across Europe (TechCrunch, 05/20/2021) Trade Republic’s latest funding round creates one of the largest privately-held fintech businesses in the region.
- Zeta Closes $250 Million SoftBank Funding At $1.5 Billion Valuation (PYMNTS, 05/24/2021) Series C round is one the the largest investments by a single investor in a banking tech startup.
- A Couple Just Moved Into a 3D Printed Concrete Home for About $1,400 a Month — See What it’s Like to Live In (Business Insider, 05/23/2021) The future of home building? Take a look into a Dutch couple’s 3D printed home.