Bank chief executives have spent years fretting about disruptive financial technology upstarts including Affirm , Klarna and Robinhood Markets . Now that those erstwhile market darlings are on the ropes, established lenders like Goldman Sachs ought to think about buying them.
Headstrong founders could be an obstacle. Klarna’s Sebastian Siemiatkowski, Affirm’s Max Levchin and Robinhood’s Vladimir Tenev want to shake up old-school finance, so may resist selling to a dinosaur. Possible future regulatory crackdowns on the companies’ businesses are another risk. And their red ink is a headache for banks. Old-school lenders tend to be valued on a multiple of earnings or book value. Buying a loss-making group could therefore destroy equity value.
The financial problem may be fixable. Imagine that Goldman bought Affirm for a 30% premium, implying a $10.5 billion enterprise value. Hitting a respectable 10% return on its investment by 2026 would require about $1.3 billion of pre-tax profit, assuming a 21% rate, compared with a projected pre-tax loss that year of $179 million, using Wedbush forecasts. Closing the gap would mean cutting two-fifths of Affirm’s costs that year.
Getting fintechs to the negotiating table may be tough if the upstarts view the crash as a blip. Klarna’s Chairman Michael Moritz, for example, reckons its valuation will improve “after investors emerge from their bunkers”. But interest rates are rising, and markets are less inclined toReuters Image
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