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Revolut on track for profits as regulators and investors switch focus



UK-based fintech Revolut is on track to make its first monthly profit this year, with more regular profits in 2021, chairman Martin Gilbert said.

Profitability is an increasingly important target for the fintech sector, Mr Gilbert told the Financial Times’ Global Banking Summit.

“Up until now, profitability didn’t matter. It was all about growth,” he said. “Over the past year, both regulators and shareholders have demanded that there’s a path to profits.”

“Regulators because they’re cautious and they don’t want to see you fail. For shareholders, there are the ‘haves’ and ‘have nots’. Those that have raised money before Covid are in a much better position than those that have had to raise money since,” Mr Gilbert said.

Revolut is one of Europe’s biggest and most high-profile fintechs but its accounts show that it made a pre-tax loss of £107m in 2019, more than three times the level of the previous year.

Mr Gilbert, a City of London veteran who was previously co-chief executive of Standard Life Aberdeen, became Revolut’s first chairman at the start of this year as the company bolstered its corporate governance. Michael Sherwood, the former co-chief executive of Goldman Sachs International, has also been brought on to the board.

In February, before the coronavirus crisis hit in earnest, the company raised $500m in a funding round that gave it a valuation of $5.5bn. “We were certainly fortunate and pragmatic in the fundraising,” said Mr Gilbert.

Revolut has not been immune to the impact of the pandemic though.

Foreign exchange has traditionally been one of Revolut’s most popular offerings, but Mr Gilbert said that this year there had been a “big shift” to other revenue streams, such as cryptocurrencies and more regular domestic spending. He is not expecting foreign travel to return to its 2019 levels until 2022.

The company has also had to cut costs to make sure that it can hit profits.

Looking ahead, the priorities are to win both banking licences and customers in the markets where the company operates.

“In Ireland, we’ve got something like a 30 per cent penetration rate — it’s amazing,” said Mr Gilbert. “One of the big strategies is to get the penetration rate up in all the countries we operate in to that sort of level that we have in Ireland.”

Revolut has high hopes for the US, where it has just launched. “The medium-term plan is eventually to have a banking licence there, as it is in the UK [and] in Ireland as well,” he said.

“We see a huge opportunity in the US,” he said, highlighting the Hispanic market as one that the company would target because of the potential for international money transfers.

“I’ve always thought — and it was the same in asset management — you have to succeed in America. Half of the world’s wealth is there so you’ve got to go there and compete.”

Quick Fire Q&A

Company name: Onfido

When founded: 2012

Where based: London and San Francisco

CEO: Mike Tuchen

What do you sell, and who do you sell it to: Artificial intelligence-powered digital identity verification, matching government-issued IDs with facial biometrics, designed for financial services, healthcare, telcos, retail and more.

How did you get started: Our three co-founders experienced the frustration of slow, manual background checks and identity verification when applying for jobs during university.

Amount of money raised so far: $200m

Valuation at latest fundraising: N/A

Major shareholders: TPG Growth, Idinvest Partners, Crane Venture Partners, Salesforce Ventures, M12 — Microsoft’s venture fund

There are lots of fintechs out there — what makes you so special: Onfido is digitally proving users’ real identity for financial products and services, creating an open, secure and inclusive online world.

Further fintech fascination

Regulators advance: Singapore’s regulators have launched the biggest shake-up of its banking industry in decades by awarding digital bank licences to a group of major tech companies including Ant Group and Sea, reports the Financial Times. But some analysts say that the new entrants might struggle to make an impact in a market that is already well served.

Crypto chronicles: Reuters reports that Libra, the Facebook-backed cryptocurrency, has been rebranded “Diem” as part of its efforts to gain regulatory approval. The change is part of a move to a simpler structure, according to Stuart Levey, who is chief executive of the Geneva-based Diem Association.

Wirecard fallout: Wirecard fugitive Jan Marsalek is alleged to have violated internal governance rules and banking laws in an incident that was flagged to regulators in 2019, says the Financial Times. Mr Marsalek is believed to have fled Germany as Wirecard collapsed in June, and is now on Interpol’s most wanted list.

Follow the money: UK challenger bank Monzo has raised an additional £60m in funding, according to TechCrunch. The latest fundraising is an extension of a top-up round in June that valued the company at £1.2bn, which was lower than its previous valuation. The latest funding comes from investors including Novator and Kaiser.

AOB: Venture capitalist Michael Moritz has been named as the next chairman of Swedish fintech Klarna, the FT reports; the FT also reports that French bank SocGen is to shut 600 branches as customers move to digital banking; Stripe has launched a service that will allow clients to provide bank accounts to their customers, says TechCrunch; Paysafe is to go public via a merger with a special purpose acquisition company in a deal that values the payments company at $9bn, according to Reuters.

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Wall Street stocks trail European equities ahead of Fed meeting




Stocks on Wall Street lagged behind European peers ahead of a two-day US central bank meeting that will be closely watched for clues on the future path of monetary policy.

Wall Street’s S&P 500 index was down 0.2 per cent at lunchtime in New York, retreating from an all-time high that the benchmark hit on Friday, while the technology-focused Nasdaq Composite index climbed 0.4 per cent.

Core US government debt sold off on Monday, taking the yield on the benchmark 10-year US Treasury note up 0.03 percentage points to 1.5 per cent. This followed a rally last week in which investors banked on the Federal Reserve looking past high US inflation to maintain its pandemic-era support for financial markets.

The Fed is widely expected to maintain its $120bn of monthly bond purchases when it meets on Tuesday and Wednesday. These asset purchases, which have been followed by rate-setters in Europe and the UK, have lowered the yields on government bonds, reducing corporate borrowing costs and boosting the appeal of riskier assets such as equities.

But after a rapid recovery of the US economy fuelled by coronavirus vaccines and President Joe Biden’s massive stimulus programmes, some analysts see the Fed’s policymakers bringing forward their predictions of the first post-pandemic interest rate rise.

“We expect the Fed to upgrade its outlook for growth and materially revise up the inflation forecast,” Tiffany Wilding, US economist at the bond investment house Pimco, said in a research note. “We think the majority of Fed officials will also pull forward their projections for the first rate hike to 2023 [from 2024].”

Headline US consumer price inflation hit 5 per cent in the 12 months to May. Jay Powell, Fed chair, has maintained that the rises are a temporary effect of the US economy reopening after coronavirus shutdowns. “But others are concerned inflation is more structural,” said Marco Pirondini, head of US equities at Amundi. “I’d say it is 50-50 on either side.”

A rise in used car and truck prices, after a global semiconductor shortage lowered production of new vehicles, accounted for about a third of the increase in May’s CPI, according to the Bureau of Labor Statistics.

US wages could also “go up in a more sustained way”, Pirondini said, after Biden signed an executive order in late April to increase government pay, pressuring private industry to also raise salaries.

Across the Atlantic, the pan-regional Stoxx Europe 600 gained 0.2 per cent to another record high with energy the top-performing sector following a further lift in oil prices.

Brent crude climbed as much as 1.3 per cent on Monday to $73.64 a barrel, a two-year high for the international oil benchmark.

Line chart of Indices rebased showing UK’s travel and leisure stocks trail wider market

Elsewhere in the region, the UK’s travel and leisure companies lagged behind the wider market on reports that the planned lifting of Covid-19 curbs in England on June 21 would be delayed by the UK government.

The news left the FTSE 350 Travel & Leisure sector down 1.4 per cent compared with a rise of 0.2 per cent for the broader FTSE 350 index.

The dollar index, which measures the US currency against peers, dipped 0.1 per cent. The euro was up 0.2 per cent against the greenback, purchasing $1.212. Sterling was up 0.1 per cent at $1.411.

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday

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BNP under fire from Europe’s top wine exporter over lossmaking forex trades




BNP Paribas is facing allegations that its traders mis-sold billions of euros of lossmaking foreign exchange products to Europe’s largest wine exporter, the latest accusations in a widening controversy that has also enveloped Goldman Sachs and Deutsche Bank.

J. García Carrión, founded in Jumilla in south-east Spain in 1890, is in dispute with the French lender over currency transactions with a cumulative notional amount of tens of billions of euros. It claims the lossmaking trades were inappropriately made with one of its former senior managers between 2015 and 2020, according to people familiar with the matter.

BNP is one of several banks facing complaints from corporate clients in Spain over the alleged mis-selling of foreign exchange derivatives, which pushed some companies into financial difficulties.

Deutsche Bank has launched an internal investigation of the alleged mis-selling that this week led to the departure of two senior executives, Louise Kitchen and Jonathan Tinker.

An internal investigation at JGC found that BNP conducted more than 8,400 foreign exchange transactions with the company over the five-year period, equivalent to about six each working day.

That level of activity was far higher than what the company would have needed for normal hedging of exchange-rate risk on international wine exports, the people said, adding that the Spanish company had shared the results of its internal probe with BNP.

While the vast majority of the lossmaking trades related to euro-dollar swaps that moved against the bank, some were in currency pairs where JGC has little or no operations, such as the euro-Swedish krona.

As a direct result, the €850m-revenue company made about €75m of cash losses in those five years, while BNP could have made more than €100m of revenue from transactions, the people added. Many of the deals were made through trading desks in London.

Executives have demanded compensation for at least some of the losses, arguing that BNP’s traders or compliance department should have spotted and reported the disproportionately high level of transactions and profits from a single client, according to multiple people with knowledge of events.

JGC says the deals were designed as bets on currency markets, rather than for hedging, and is considering a lawsuit to try to recover some of the money, one of the people said.

“BNP Paribas complies very strictly with all regulatory obligations relating to the sale of derivatives and foreign exchange instruments,” the bank said in a statement. “We do not comment on client relationships.”

JGC declined to comment.

Separately, the Spanish wine producer is suing Goldman Sachs in London’s High Court for a partial refund of $6.2m of losses caused by exotic currency derivatives. Goldman has maintained the products were not overly complex for a multinational company with hedging needs and were entered into with full disclosure of the risks.

In Madrid, the wine company has also brought a case against a former senior executive who was responsible for signing off the lossmaking deals. JGC alleges this person conducted the deals in secret and covered them up internally by falsifying documents and misleading auditors.

In the London lawsuit, JGC alleges its executive was acting “with the encouragement and/or pursuant to the recommendations” of Goldman staff “for the purposes of speculation rather than investment or hedging”.

Deutsche Bank has been investigating for months whether its traders in London and Madrid sidestepped EU rules and convinced hundreds of Spanish companies to buy sophisticated foreign exchange derivatives they did not need or understand.

The Financial Times has reported that the German bank has settled many complaints brought against it in private and avoided going to court.

People familiar with the matter told the FT that the departures of Kitchen and Tinker were linked to the probe into the alleged mis-selling, which appears to have occurred in units that at the time were overseen by the two.

The bank declined to comment. Kitchen and Tinker did not respond to requests for comment.

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Will the Fed dare to mention tapering?




Will the Fed dare to mention tapering?

When Federal Reserve officials convene on Tuesday for their latest two-day monetary policy meeting, questions over whether the central bank should start talking about tapering its $120bn monthly bond-buying programme will lead the agenda.

Since the US central bank last met in late April, several senior Fed policymakers, including vice-chair Richard Clarida, have cracked the door more widely open for a discussion about eventually winding down the pace of those purchases, which include US Treasuries and agency mortgage-backed securities.

The recent comments align with those referenced in the latest Fed meeting minutes, which indicated that “a number of participants” believed it might be “appropriate at some point in upcoming meetings” to begin thinking about those plans if progress continued towards the central bank’s goals of a more inclusive recovery from the pandemic.

Recent economic data support this timeline. Consumer prices in the US are rising fast, with 5 per cent year-on-year gains in May revealed in last Thursday’s CPI report — the steepest increase in nearly 13 years. Additionally, last month’s jobs numbers, while weaker than expected, still showed signs of an improving labour market.

Most investors still expect the Fed to only begin tapering in early 2022, with guidance on the exact approach delivered in more detail around September this year at the latest. Goldman Sachs predicts a more formal announcement will come in December, with interest rate increases not pencilled in until early 2024.

“The Fed is signalling they are going to start talking about it,” said Alicia Levine, chief strategist at BNY Mellon Investment Management. “They are softening up the market to expect [something] this summer.” Colby Smith

Are inflation risks rising for the UK?

Consumer prices in the UK have risen at an annual rate of less than 1 per cent for most of the pandemic due to low demand for goods and services and weak wage pressure.

However, with the recent easing of Covid-19 restrictions releasing pent-up consumer demand, the nation’s headline inflation figure doubled in April from the previous month.

When core consumer price inflation data for May are released on Wednesday, some analysts expect an even bigger leap, predicting that annual CPI growth will jump to the Bank of England’s target of 2 per cent.

Robert Wood, chief UK economist at the Bank of America, said such an inflation surge would add to the BoE’s hawkishness. He also forecast further rises later this year as commodity price increases continued to elevate energy and food costs.

Additional price pressure would come from supply chain disruptions and higher transport costs that push up input costs.

“The upside risks to our inflation forecast are growing from all angles,” said Paul Dales, chief UK economist at Capital Economics, who expected consumer price levels to peak at 2.6 per cent in November.

“The reopening may result in prices in pubs and restaurants climbing quicker than we have assumed,” Dales added, while labour shortages in some sectors, such as construction and hospitality, were also starting to push up wages and prices.

However, both analysts expect the increased price strain to be temporary.

“Once higher commodity prices have fed through to consumer prices, inflation will fall back again,” said Wood, forecasting that UK inflation would drop back below the BoE’s target in late 2022. Valentina Romei

Line chart of Annual % change on consumer price index showing UK consumer price inflation is set to rise above target

Will the BoJ keep its rates policy on hold?

Japan’s economic recovery has diverged from Europe and the US this year as it struggles with its Covid vaccination campaign and big cities such as Tokyo continue to be partially locked down under states of emergency due to the pandemic.

Although the nation’s wholesale prices rose at their fastest annual pace in 13 years last Thursday on surging commodity costs, Japan has otherwise faced a lack of price pressures compared with the US.

That means that when the Bank of Japan concludes its two-day meeting on Friday, analysts believe it will not alter monetary policy.

“I don’t expect any change in policy,” said Harumi Taguchi, principal economist at IHS Markit in Tokyo. “They increased flexibility in March and I expect they will continue to watch that.”

After a policy review, Japan’s central bank in March scrapped its pledge to buy an average of ¥6tn ($54.8bn) a year in equities, and the pace of its exchange traded fund purchases dropped sharply in April and May. The moves signalled a shift away from aggressive monetary stimulus in favour of what the BoJ termed a more “sustainable” policy.

“Japan is one of the few countries whose property prices have not risen, and since rent is a major component of the consumer price index, it is not likely to see much inflation ahead,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo.

“Interest rates can remain extremely low, which in turn keeps the yen on a weak trend,” Vail added. Robin Harding

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday

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