🗞 The ‘One’ Way for Wall Street Banks & $40BN Valuation Would Rank Revolut Alongside Europe's Biggest Banks

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Here are today’s 3 articles each with 5 key takeaways for you to read in less than 5 minutes.

1. The ‘One’ Way for Wall Street Banks

2. A $40BN Valuation Would Rank Revolut Alongside Europe's Biggest Banks

3. Carlyle and KKR Top Bidders for Discover's $10BN US Student Loan Portfolio

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THIS MORNING’S TOP 3 READS

The ‘One’ Way for Wall Street Banks

TL;DR: Morgan Stanley's new CEO, Ted Pick, is promoting an integrated approach to improve collaboration across the firm. This strategy, termed "The Integrated Firm," aims to foster better inter-departmental cooperation, similar to initiatives at other firms, such as Goldman Sachs. The goal is to boost growth in mature sectors like investment banking and trading and to ensure seamless coordination among its various divisions.

Here are 5 key takeaways from the article:

1. Integrated Firm Strategy: Morgan Stanley’s CEO emphasises breaking down silos within the firm to encourage cooperation among different departments, such as investment banking, financial advising, and wealth management.

2. Historical Context: The concept of integrating various divisions is not new. Former CEO John Mack and other financial institutions like BlackRock and Goldman Sachs have implemented similar strategies in the past.

3. Challenges in Implementation: While the idea makes sense on paper, practical challenges include discretionary bonuses for cross-division work (i.e. bonuses for asset management employees if they refer business to the investment banking division) and deep-rooted cultural differences within the firm, often stemming from acquisitions.

4. Business Diversification: Morgan Stanley's current structure is a mix of various acquired entities, including Smith Barney, Dean Witter, ETrade, and Eaton Vance, making seamless integration crucial but complex.

5. Leadership and Trust: For successful implementation, trust between divisions is essential. Morgan Stanley’s CEO points to a unified leadership team and a calm succession process as positive signs for fostering collaboration, although skepticism about the depth of this unity remains. For example, the last thing an investment banker would want is a ruined client relationship because the private banking / asset management / trading division offered a poor returning trade to the client.

A $40BN Valuation Would Rank Revolut Alongside Europe's Biggest Banks

TL;DR: British fintech company Revolut is aiming for a valuation exceeding $40 billion through an upcoming share sale, potentially surpassing major banks like Deutsche Bank and Barclays. This valuation would establish Revolut as Europe's most valuable start-up. The company generates revenue from payments, subscriptions, and trading services and is seeking a UK banking license to expand further.

Here are 5 key takeaways from the article:

1. High Valuation Target: Revolut aims for a valuation exceeding $40 billion, making it more valuable than major banks like Deutsche Bank and Barclays. This would also make it the most valuable start-up in Europe, emphasising its strong market position despite the challenging environment for fintech valuations.

2. Revenue Sources and Expansion Plans: Revolut generates revenue from payments, subscriptions, and trading in stocks and cryptocurrencies. The company is seeking a UK banking license to broaden its service offerings but has been waiting for over two years for approval.

3. Comparison with Other Financial Institutions: If successful, Revolut's valuation would surpass those of Barclays and NatWest, and approach Lloyds. It would be about four times the value of the British money transfer firm Wise, highlighting its significant market position.

4. Regulatory and Accounting Challenges: Revolut has faced scrutiny over its internal accounting practices. Its auditor, BDO LLP, struggled to verify a substantial portion of its reported revenue in 2021. Despite these issues, the overall revenue figure was not disputed and concerns were addressed.

5. Rapid Revenue Growth and Customer Base: Revolut’s revenue hit a record $1.1 billion in 2022, driven by interest income rather than the cryptocurrency trading boom that contributed to its first full-year profit in 2021. The company serves 40 million customers globally, with 9 million in the UK, though its deposit base is still small compared to major banks.

Carlyle and KKR Top Bidders for Discover's $10BN US Student Loan Portfolio

TL;DR: Private equity firms Carlyle Group and KKR are the leading contenders to acquire Discover Financial's $10 billion U.S. student loan portfolio. They’re collaborating on the bid as part of a broader trend of private investment firms expanding into credit markets. The deal, which has also attracted interest from other major private equity firms, is expected to be finalised by early July.

Here are the 5 key takeaways from the article:

1. Top Bidders: Carlyle Group and KKR are the primary bidders for Discover Financial's $10 billion U.S. student loan portfolio, highlighting their joint effort to expand their credit market investments.

2. Collaboration Among PE Firms: The nature of the collaboration between Carlyle Group and KKR wasn’t detailed, but their joint bid reflects a strategic partnership aimed at securing significant credit assets.

3. Interest from Other PE Firms: Several other prominent private equity firms, including Ares, Blackstone, Brookfield, Fortress, and Oaktree, have also shown interest in bidding for the loan portfolio, indicating high competition for these assets.

4. Transaction Timeline: The deal is anticipated to close later this month or in early July, following Discover Financial's announcement last November of its intention to sell the student loan portfolio and transfer loan servicing to a third party.

5. Regulatory Context: The bid for Discover Financial's student loan portfolio comes amid increased regulatory scrutiny of bank mergers in the U.S., particularly under President Biden's administration, as seen in recent approvals for JPMorgan and New York Community Bank to acquire failed bank assets.

That’s all for today. See you tomorrow.

Afzal

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