finance

There is much to like in Wise’s direct approach to London listing | Nils Pratley


Hurrah, Deliveroo’s float flop didn’t kill the appetite for tech listings in London. Actually, the gloomy theory always looked far-fetched. Investors are capable of distinguishing between a loss-making fast food delivery firm in a highly competitive field and Wise, formerly TransferWise, a profitable Shoreditch-based operation that is already a threat to big banks’ price-gouging practices in the cross-border money transfer game.

Wise’s arrival is different in another way. The innovation – or new feature for the London market, at least – is a “direct listing” model. In short, the company is not raising new capital so there are no new shares to be marketed and then priced. Willing sellers among existing shareholders will simply be given the chance to meet willing buyers, thereby creating a market.

It’s all very straightforward and, from the point of view of current shareholders, one advantage is transparent price discovery in a hard-to-value stock. Wise’s last funding round valued the business at $5bn (£3.6bn) and it is genuinely hard to predict, even to the nearest billion, where public trading will open.

Pre-tax profit doubled to £41m last year and the business is expanding rapidly with a simple pitch: no hidden fees within massaged exchange rates. About £54bn was moved across borders last year. One of these days, you might think, the banks will recognise a competitive threat and respond. On past form, though, it’s just as likely they’ll try to cling to undeserved income until it’s too late. Wise’s cut-price approach should have room to grow for a while yet.

That is also the founders’ excuse for following the techie obsession with enhanced voting rights, this time extending first-class status to existing shareholders for half their holdings if they wish. The plea is that the company needs to keep its eye on the long-term prize. They all say that, and the chief executive, Kristo Käärmann, may even have a stronger argument than some. But the sunset clause – the point at which voting enhancements disappear – is five years, which feels too long to adapt to normal life as a public company. Equal votes for equal economic risk remains an excellent principle.

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But there is much to like in the direct listing approach. The option does not allow a company to raise capital at float – which rules it out for most tech firms and almost every business that has been loaded with debt by private equity owners. But it will appeal to a few. If the effect is to chip away at the fees that investment banks charge in conventional IPOs, which are as outrageous as exchange rate markups, bring it on.

JP Morgan’s pinch of Nutmeg

JP Morgan’s purchase of Nutmeg, the UK digital-only wealth manager, is surprising. The purchase price, thought to be £700m, looks steep for a business that has pioneered “robo-advising” – or enabling clients to pick from ready-made portfolios – but has yet to turn a profit. Yes, there are 140,000 customers and assets under management of £3.5bn, but those numbers wouldn’t necessarily turn heads at the biggest bank in the US.

One moral of the tale, perhaps, is Nutmeg’s technology may be smart but a shove from a big and rich owner is required to generate scale. Another is that JP Morgan is clearly serious about making a splash with the launch of its digital bank in the UK later this year. The venture already looks more than an experiment.

The established UK banking order cannot be said to have been troubled greatly by nimble and interesting startups such as Monzo and Starling. A beast the size of JP Morgan, however, is a different proposition.

Bitcoin losses could be a harsh lesson

Take your pick from a long list of astonishing statistics in the Financial Conduct Authority’s research report on cryptocurrencies. For example: the estimate that 2.3 million adults hold cryptocurrencies, a rise of 400,000 on a year ago. That suggests the lure of speculation has been strong during the long months of lockdown. Online gambling firms have also been enjoying conditions.

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The most extraordinary finding, however, is surely that 12% of consumers apparently believe crypto investments are protected financial products, so capable of being covered by compensation schemes. No, if you lose your shirt on bitcoin, you are not going to be compensated. If slightly more than one in 10 think otherwise, the regulator’s financial education mission has work to do, to put it mildly.



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