A bank you never heard of has died

How many of you can hold your hands up and say that you have heard of Raphael’s Bank?

It is one owned by an archangel by the way. It is Britain’s second oldest bank and it has existed for 232 years.

What happened to cause its quiet demise? It wasn;t on the news, because few people have heard of it, therefore there was no rush to get the government to bail it out. The bank, which was a leader in lending, sold its motor finance division in 2018 and stopped lending completely in April this year, as reported in Forbes by Frances Coppola. It has also now just closed its retail savings division. Its press release said,

“All savings account holders have been given sixty days’ notice, in line with regulatory guidelines, of the bank’s intention to return their monies to them and close their accounts.”

In 2015, the bank was an active lender, though it had no high street presence and operated mainly through brokers and third parties. Its main strength was in motor finance, including mobility scooters and such like, and it was known for its range of retail and small business loans. It was also a significant provider of pre-paid credit cards in the UK, and had a string of ATMs. Coppola says, “It was, in short, a small full-service bank. Just the sort of bank the highly concentrated UK banking marketplace needs.”

However, story of its death goes back to who owns it, because it wasn’t really an independent bank, despite its independent sounding name. It is owned by Lenley Holdings, which also owns the International Currency Exchange (ICE). And Lenley didn’t want to support a small British bank, so it put it up for sale in 2016.

The expectation was that Russian and Chinese buyers would leap at the opportunity, but none emerged. Meanwhile Raphael’s kept expanding its services, including becoming the banking partner for Transferwise in the UK. And it partnered with Vodafone and PayPal in their mobile money initiative in Germany.

In fact the bank was doing very well in 2017 and reported a profit of over £22m ($28.57m), which was a significant increase on the paltry £25,000 ($32,470) of the year before.

Some onlookers say that the Brexit fiasco spooked overseas buyers, which is likely true, but then in 2018 the bank reported a massive loss of nearly £4.5m ($5.84m). The chances of finding a buyer now were rapidly disappearing, which is why it closed its motor finance and asset finance activities, and sold its motor loan book. Therefore in 2019 it was judged that it couldn’t be sold as a going concern, so Lenley decided to liquidate it.

It is not a catastrophic situation for the banking community, but it is an interesting story for startup neobanks. Just remember, even though this bank opened for business before the French Revolution, in the end it was defeated by a combination of geopolitical events and a low Euribor rate that decimated its evolving payments division.

Investing in Stock Exchanges: a novel idea

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The world of investing centres on investing in stocks. However, Jon Markman writing at Forbes offers up a new idea: investing in stock exchanges. How does that work, you may ask. Markman points to the Intercontinental Exchange (ICE), an operator of commodity and stock exchange, which posted exemplary financial results on 1st August and suggests that as its managers plan to disrupt lucrative markets, such as the new digital ones, it is worth looking at it as a potential investment.

ICE “builds, operates and advances global markets through information, technology and expertise,” according to its website. It’s a relatively new set-up that was only founded in 2000. In 1996, Jeffrey Sprecher, a mechanical engineer from Wisconsin, bought Continental Power Exchange, an Atlanta electronic energy trading company for $1,000. He saw an opportunity to take advantage of a move to electronic trading.

The company launched as ICE in 2000 when Sprecher gave up 80% of the business to investment bankers Goldman Sachs and Morgan Stanley, according. It immediately became a competitor to Enron, one of the biggest electronic trading platforms at the time. However, it wasn’t long before the Enron scandal broke and in a very short time ICE became the market leader.

Sprecher had no experience in financial markets, nor had he ever traded stocks and shares, but he “could see how slow, traditional financial markets were about to be disrupted by fast, low-latency software platforms,” Markman says. Sprecher recounted the story of how flying back from London he spotted a story in the Financial Time about credit default swaps (CDS), and while he had no clue about what they were, he intuited that there might be an opportunity for ICE to leverage its platform to build an electronic marketplace. Today,  ICE currently clears 96% of all CDS.

He also used his creative thinking to engineer the $8.2 billion buyout of the New York Stock Exchange in 2012. In a little over a decade, this small Atlanta company went from obscurity to being in the vanguard of financial markets.  Today ICE currently operates 12 regulated exchanges and six clearing houses. The company logged $6.3 billion in revenue in 2018.

Its success is down to a great strategy based on seeing the transformation of financial markets early on. It has continued to make interesting strategic acquisitions, including the Chicago Stock Exchange last year, and as Markman says, “Getting ahead of the digital transformation of the $11 trillion mortgage market is another multibillion-dollar opportunity for ICE.”

Furthermore, as it is based in regulated financial markets, the company is the logical intermediary for this emergent digital ecosystem. It appears ot be firing on all cylinders, and as Markman says, “Growth investors should consider using broad-market weakness to accumulate shares.”