By Paul May Cerqueiro and Lawrence White
LONDON (Reuters) – OakNorth is leaning towards the United States for a likely listing as the British bank considers opportunities to grow in the world’s largest economy, including securing a local US financial license, Chief Executive Rishi Khosla told Reuters.
The prospect of a US listing for one of Britain’s largest and most successful financial technology companies would come as a blow to London after chipmaker Arm announced it would be floating in New York despite government efforts to keep it at home.
Sources with knowledge of the matter told Reuters that OakNorth, whose UK banking arm has been profitable since 2017, may be able to go public within the next 12 months.
Khosla played down that initial public offering (IPO) timeline, instead saying the company will attempt to go public “sometime in the future” but was in no rush.
Japanese conglomerate SoftBank Group, which has an undisclosed stake in OakNorth and controls Arm, declined to comment.
Khosla said the lack of a domestic investor base focused on high-growth technology made London unattractive as a stock exchange for OakNorth.
The comments mark a marked change from previous interviews, in which Khosla had indicated a preference for London as a stock exchange.
OakNorth operates a commercial bank in the UK with assets in excess of £4 billion (US$4.73 billion) and supplies its technology to lenders elsewhere, including US lenders such as PNC Financial Services Group and Modern Bank.
The company is looking to add more technology customers in the US and is “open” to seeking a banking license there, suggesting it could be achieved through an acquisition, Khosla said.
OakNorth declined to comment on the type of license that might be sought. Foreign banks can operate in the United States through either state or federal bank deeds, which they can apply for or obtain by acquiring a local lending institution.
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OakNorth, which is due to report its 2022 financial statements in the next few weeks, has so far had almost no loan defaults despite the slowing UK economy and soaring inflation.
The lender reported a loan default rate of 0.07% versus an industry average of 0.32% in 2021. Khosla said the number will increase “but not significantly” in the soon-to-be-released 2022 numbers.
That leaves it in a strong position to buy another bank in the UK and potentially buy out one of its digital-only neobanks, Khosla said without being specific.
“We feel good about our business, we’re in a robust place … it would be easy for us to make a nine-figure cash acquisition,” he said, adding that the group could also use its own stock to fund a act.
OakNorth was last valued at $2.8 billion in 2019, when SoftBank directed a $440 million cash injection into the “fintech” group.
Since then, tech valuations have soared before collapsing last year on rising interest rates and a deteriorating economic outlook. European bank stocks have gained nearly 40% over the past year on rising interest rates, while the Dow Jones US Banks Index has fallen 8% over the past 12 months.
OakNorth declined to comment on its valuation, but said it views New York-listed Nubank as its closest competitor.
($1 = 0.8448 pounds)
(Reporting by Pablo Mayo Cerqueiro and Lawrence White; Additional reporting by Amy-Jo Crowley; Editing by Sinead Cruise and Jane Merriman)
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