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Lenders pull IPOs even as mortgage market thrives



Two fast-growing US home lenders suspended their plans to list their shares last week, suggesting that the housing boom triggered by falling interest rates may rest on weak foundations.

Caliber Home Loans originated $57bn in home loans in the first nine months of 2020, an increase of 50 per cent, year on year. But last Wednesday, the day it was set to list, the company announced that it would “postpone” its public offering and “evaluate the timing for the proposed offering as market conditions develop”. AmeriHome, with $45bn in originations year to date and a growth rate to match Caliber’s, was also set to price its offering last week, but also delayed its listing. 

The IPOs would have given Caliber, which is owned by the private equity house Lone Star Funds, a market capitalisation of $1.9bn. AmeriHome, which is controlled by Apollo, was set to be valued at $1.3bn in its IPO.

The delays are surprising inasmuch as it is an excellent time to be a mortgage lender. The volume of mortgage refinancing applications, while down from the dizzying highs of the spring, are still about 60 per cent higher than they were a year ago, according to the Mortgage Bankers Association. Purchase mortgage applications are about 20 per higher.

Profitability is strong, too. The difference between the average rate consumers pay on their mortgages and the coupon on a government-backed mortgage bonds stands at 1.6 per cent, against pre-Covid levels of around 1 per cent. The spread is a rough proxy for lenders’ profit margins, because it tracks the difference between what lenders can buy mortgages for and the price at which they can sell them in the bond market.

Line chart of Year-over-year change, per cent showing Purchase mortgage applications

In the third quarter, as a result, net income at Caliber and AmeriHome rose 200 per cent and 187 per cent, respectively. 

According to one person close to the situation, however, investors are concerned that the good times for mortgage lenders are at their peak, with only downside from here.

The fact that other IPOs continued apace last week — including debuts from Chinese wealth management platform Lufax and online insurer Root — underscored that the pulled flotations had more to do with investor disenchantment with the mortgage industry than broad stock market conditions.

Line chart of Year-over-year change, per cent showing Refinance mortgage applications

The disappointing performance of several recent offerings from other lenders and a slide in the shares of publicly listed lenders weighed on the Caliber and AmeriHome listings, according to people briefed on the matter. Rocket Companies’ Quicken Loans is the largest mortgage lender in the country. Rocket listed its stock at $18 a share in August, below its original target range. They remain near that level. Smaller Guild Mortgage also faced lacklustre investor interest for its IPO earlier in October, selling fewer shares than it had expected. Those shares slipped from an already cut listing price.

Publicly traded mortgage lenders PennyMac Financial and Mr Cooper have seen their shares underperform over the past few weeks after a strong summer. 

Rising interest rates are part of the reason sentiment on the mortgage lenders have shifted. Since August, the yield on the 10-year Treasury has moved from about 0.5 per cent to 0.86 per cent. If this trend continues it would crimp both mortgage demand and lender profitability.

“With the election coming up, there is concerns about a ‘blue wave’ [a Democratic sweep] that results in inflation because of big government spending, and then the 10-year moving up, causing mortgage rates to rise,” said Kevin Barker, a mortgage finance analyst at Piper Sandler.

Line chart of Difference between average mortgage rates* and coupons on mortgage-backed securities**  showing Mortgage spreads remain wide

Recent market volatility, triggered by surging Covid-19 cases and election uncertainty, also contributed to the suspensions. The S&P 500 fell almost 5 per cent last week, and the Vix volatility index rose to its highest level since June. This limited the two lenders’ chances of getting their offering away at a good price, said Christopher Whalen of Whalen Global Advisors. “Both Caliber and AmeriHome are well managed businesses with professional owners. They won’t pull the trigger if the pricing does not make sense,” he said.

“The timing of these [announcements] has everything to do with market volatility generally,” said Walt Schmidt, mortgage strategist at FHN Financial. At the same time, he said, “there is uncertainly about delinquencies in the coming months” as borrower forbearance programmes expire. Just under 6 per cent of mortgage loans remain in forbearance, according to the Mortgage Bankers Association.

Two other home lenders, United Wholesale Mortgage and the Loan Depot have also recently announced their intention to list — the former by merging with the special purpose acquisition company (Spac) Gores Holdings. Their prospects are now uncertain. 

“There was a small window of opportunity, and I don’t know if it will open again,” Mr Whalen said. 

Caliber and AmeriHome declined to comment.

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Fintech Wise in talks with regulators over direct UK listing




Wise, the fintech formerly known as TransferWise, is in discussions with British financial regulators about going public via a direct listing, in what would be a landmark deal for the UK market.

Wise is aiming to list in June and has been discussing the mechanics of a direct listing with the Financial Conduct Authority, according to people close to the company.

One of the people said the timing and structure of the deal were not yet finalised, but that the company had settled on a direct listing in London as its preferred route, after it hired banks to explore various options for going public last year.

The decision will be a boost for the London stock market and ministers after the high profile flop of Deliveroo’s initial public offering at the end of last month.

The UK government has been keen to attract more fast-growing tech businesses, with a review led by former EU financial services commissioner, Jonathan Hill, calling for a range of reforms to loosen listing rules.

Unlike Deliveroo, which has no operations in the US, and Darktrace whose shareholder Mike Lynch is fighting extradition to the US on fraud charges, investors say Wise could have been more easily attracted to a New York listing given its international leadership, global customer base and cross-border platform.

TransferWise was launched by Estonian duo Kristo Kaarmann and Taavet Hinrikus in 2011, offering low-cost international money transfers for retail customers, but has recently focused on attracting business clients and moving into more sophisticated banking services. It was renamed Wise in February in an effort to highlight the shift beyond simple money transfers.

The company reported revenues of £303m and pre-tax profit of £20.4m in the 12 months to March 2020, the most recent year for which data are available, and it has previously said that profits continued to grow through 2020.

Wise was most recently valued at $5bn in a secondary sale last July — equivalent to around £3.9bn at the time of the deal or £3.6bn at current exchange rates. However, shares in many payments companies have surged over the past year, and one existing investor said they were hoping for a valuation as high as $10bn.

Direct listings allow existing investors to sell shares and provide a relatively cheap way for companies to join the stock market without raising any new capital. They have become increasingly popular in the US in recent years, following high profile listings by tech companies such as Spotify, Slack and Roblox.

In an interview with the Financial Times late last year, Wise chief financial officer Matt Briers said “the traditional IPO has been a pretty boring or stale product for a while”. He added that “the direct listings space is quite interesting”, but stressed there had only been a few successful examples.

The FCA said: “We do not comment on individual cases but we assess all listing applications carefully and constructively with the applicant in line with a strict set of eligibility criteria. This is to ensure they meet the required listing standards and to avoid investor harm.”

The regulator said in its submission to the Hill review this year that “consideration should be given to ensure the UK regime is flexible enough to ensure these routes to market are available to companies in London as well.”

The London Stock Exchange has a long precedent of allowing companies to be “introduced” without raising capital, but Wise would be the largest company to do so without already being listed in another market or being separated from an existing business since Old Mutual, the investment group, in 1999.

Wise declined to comment.

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AppLovin adds to IPO boom




The IPOs keep coming. After Coinbase’s successful direct-listing debut on the Nasdaq on Wednesday — it closed at $328, well above its reference price of $250, to be worth a fully diluted $86bn — mobile games group AppLovin has just raised $1.8bn to be worth $28.6bn.

The owner of hits such as Matchington Mansion and Wordscapes priced its shares at $80 ahead of its listing on the same exchange today, giving it a market value many times higher than the $2bn at which private equity group KKR purchased a $400m stake three years ago.

Several other gaming companies rushed to tap public markets after the pandemic brought them a windfall of users. The Roblox gaming platform joined the New York Stock Exchange last month and Israeli mobile game developer Playtika listed on Nasdaq in January.

They were part of a rush to market in the first quarter, where 398 US companies had IPOs, up from just 37 last year. Three-quarters were special purpose acquisition companies. Even excluding the Spac frenzy, the first quarter eclipsed the past five years, says Lex. This does not include direct listings of Roblox and Coinbase either.

The listing mania has allowed VC firms such as Sequoia and Andreessen Horowitz to cash out and gather more funding firepower to compete in a market of rapidly rising valuations for earlier stage companies.

Last year, 121 companies joined the elite group of start-ups valued at $1bn or more, according to CB Insights data. In the first three months of 2021, 78 companies hit the same target. Around the world there are now more than 600 such unicorns, led by China’s ByteDance, and the first quarter set a new record for global venture funding, with $125bn raised around the world, according to data from Crunchbase. 

Lex: US first-quarter IPOs

The Internet of (Five) Things

1. Deliveroo orders double under lockdown
Deliveroo said its order volumes more than doubled to 71m in the first quarter of 2021, with customer numbers also increasing sharply, as chief executive Will Shu admitted he had “a lot of work ahead” to win over investors after the UK food delivery service’s disastrous initial public offering.

2. TSMC ups sales forecast amid chip shortages
Taiwan Semiconductor Manufacturing Company, the world’s biggest contract chipmaker, expects 20 per cent revenue growth this year, up from a mid-teens forecast in January, as it continues to try to meet demand caused by a worldwide shortage of semiconductors.

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3. Dell boosted by VMware dividend
Dell shares are touching $100 today, up 8 per cent, after the US computer maker said it would receive a cash dividend of nearly $10bn in connection with the spin-off of its stake in VMware, easing pressure on its balance sheet.

4. Darktrace Lynch mystery
Darktrace has issued contradictory information about the role of British tech billionaire Mike Lynch, who has been charged with fraud in the US, complicating the cyber security company’s efforts to distance itself from the Autonomy founder ahead of its potential £3bn float. In 2018, Darktrace told the FT that Lynch had left its advisory council the previous year. But the company’s stock market registration document published this week says he remained on the body until March 2021.

5. How Jack Ma fell foul of Xi Jinping 
China’s most outspoken billionaire has gone silent. Since Chinese president Xi Jinping unexpectedly called off the blockbuster public offering of Ant Group, Jack Ma’s payments and lending business, five months ago, the Alibaba founder has made a single public appearance. Here’s our FT Magazine piece on how he fell from grace.

Sifted — the week in European start-ups

Sustainability is the latest buzzword among European start-ups. Venture capitalists are increasingly interested in measuring the ‘impact’ of their investments, while companies are ever more keen to show how ‘green’ they are to win over customers. This week, an €87m climate tech venture capital fund closed, a new ethical investment app launched and Sifted took a look at what, exactly, a head of sustainability does. 

Also this week, Sifted examined which fintech businesses might soon reach a $1bn valuation and columnist Nicolas Colin argued that if the Greensill debacle and Deliveroo’s recent doldrums teach the start-up community anything, perhaps it’s that they need to learn how to lobby.

Tech tools — Musion’s holographic pizza

Even going out on my first real-world assignment in more than a year today, there was still a virtual, remote element to the venue I visited on London’s South Bank. Virgin Media had connected their gigabit broadband service to a temporary pizza restaurant by the Thames, fitted out with equipment to create a hologram dining experience shared with a twin restaurant in Edinburgh. On the other side of the table to me in Scotland was the very realistic and contoured figure of Ian O’Connell, a director at the 3D holographic tech company Musion.

Its tech deployed an array of professional cameras and lighting to create life-size 4K holograms of the two of us against Vantablack panelled walls rather than conventional green screens. While this would have been a boon during lockdown, bringing loved ones closer together in hospitals and care homes, Ian told me the pandemic has helped to hasten development and such rooms could move beyond the trial stage to be appearing in businesses in 18 months’ time.

A pilot project for PwC has been created in Cyprus with the equipment costing around £140,000, but substituting TV broadcast standard cameras with cheaper ones could reduce the price considerably. The Two Hearts Pizzeria is connecting more than 30 loved ones in London and Edinburgh today and Friday. The rest of us will have to wait a little longer for the mystic pizza 3D-meeting experience.

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Mobile games group AppLovin valued at $28.6bn in IPO




AppLovin, the mobile games company that owns hits such as a Matchington Mansion and Wordscapes, has raised $1.8bn in an initial public offering, giving it a market capitalisation of $28.6bn and making it one of the biggest public debuts of the year.

The company, backed by private equity group KKR, has established itself as one of the power players in mobile gaming in part through numerous acquisitions and has benefited from a boom in usage during the pandemic.

It owns and operates more than 200 games itself and also sells access to its marketing software to other developers, making it easier for them to monetise their apps.

The company priced its shares at $80 ahead of its listing on the Nasdaq on Thursday, according to the regulatory filing, the midpoint of its previously set range of $75 to $85. The issue price gives it a market value many times higher than the $2bn at which KKR purchased a $400m stake three years ago.

The private equity group was selling 2.5m shares in the offering, according to the regulatory filing, but was keeping a stake worth $8.6bn. KKR will also retain 67.4 per cent of the company’s voting power.

AppLovin said its revenue reached $1.45bn last year, up 46 per cent on 2019, although it lost $126m compared to net income of $119m the previous year. In its prospectus, AppLovin said it had compounded annual revenue growth from 2016 to 2020 of 76 per cent.

Several other gaming companies rushed to tap public markets after the pandemic brought them a windfall of new users and despite uncertainty over their prospects as many countries lift restrictions on in-person activities. Pre-teen favourite Roblox joined the New York Stock Exchange last month, and Israeli mobile game developer Playtika listed on Nasdaq in January.

On top of an anticipated slowdown in growth, the industry also faces headwinds from tighter advertising and privacy rules that Apple is scheduled to integrate into its app store in the coming months.

Those changes represented “the biggest challenge” for the mobile gaming industry at the moment, said Craig Chapple, a strategist with research group Sensor Tower, but he said AppLovin might be better positioned to manage them because of its dual revenue stream from operating games and selling its development tools to others.

Morgan Stanley, JPMorgan, KKR, Bank of America and Citigroup led the offering.

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