Coinbase’s $86 Bn IPO; Q1 Bank Earnings Highlights; IRS Wants to Tax Crypto

Greetings,

This week, we look into unemployment hitting a new pandemic-era low, Q1 earnings for the major banks, and Coinbase’s valuation skyrocketing to an $86 Bn IPO valuation.

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Unemployment Reaches Pandemic-Era Low; Higher Gas Prices Driving Inflation in March

Unemployment claims dropped by 193,000 for the week ended April 10, bringing the total to 576,000. The lowest since the start of the pandemic.

Annual inflation surged to 2.6% in March, as the economy starts to recover. A jump in gas prices from the recent rebound in travel and commuting accounted for almost half the overall inflation in March.

Stimulus Payments Boost Consumer Spending in March

Retail sales advanced 9.8% in March. Consumers were eager to spend their latest stimulus checks. The boost in retail sales is the highest since last May and is great news for POS and fintech lenders.

Economists believe that the momentum will carry on in Q2.

Gary Gensler new SEC Chairman; IRS Getting Ready to Collect on Crypto Gains

Gary Gensler was sworn in as new SEC Chairman. Gensler has a full plate of issues to tackle: the RobinHood / Gamestop fiasco, SPACs running wild, Archegos, and crypto.

Prior to joining the SEC, Gensler was teaching a course on crypto markets at MIT. Also, he served as Chair of the CFTC a few years prior to the launch of Bitcoin futures.

PeerIQ Hot Take: We expect the SEC under Gensler’s leadership to approve multiple Bitcoin ETFs by year-end.

IRS Commissioner Charles Rettig believes new crypto tax reporting requirements would help the IRS collect the estimated $400 Bn taxes it is owed for 2011, 2012, and 2013.

Sen. Rob Portman sought Rettig’s feedback because the senator is in the process of drafting a bill that would establish crypto tax reporting requirements.

Big Banks Kick Off Q1 Earnings Season

Earnings season kicked off this week with JPM, BAC, WFC, C, MS, GS, PNC, CFG, and ALLY, all releasing their Q1 results. A lot to process; we share a few highlights below.

The key theme across banks we highlighted last quarter was that deposits were outpacing loan growth due to U.S. stimulus payments. That theme continued in Q1 as deposits continued to increase. Loan growth remained challenged for most banks. Borrowers continue paying down debt early.

Source: PeerIQ Analytics Platform

Banks have found themselves parking their excess liquidity from deposits in government securities. Not ideal in a rising rate environment.

None of the banks are fully jumping in the crypto bandwagon yet. MS did start providing its wealthy clients (> $2 MM in assets) with access to select bitcoin funds in Q1. GS is rolling out crypto to qualified clients (exceeding $25 MM in assets).

A few noteworthy observations from the Q1 bank earnings:

Morgan Stanley — MS successfully launched two passive crypto currency funds to qualified investors through its wealth management platform. The company is working with regulators to potentially provide additional crypto services as interest in the sector continues to grow.

Goldman Sachs — GS is prioritizing basic financial services on its Marcus platform despite current market interest for crypto wallets.

JPMorgan — 9% YoY growth in mobile users. Almost half of new checking and savings accounts were opened digitally. CEO Jamie Dimon is open to M&A opportunities in payments, asset management, and data to compete with fintechs.

Bank of America focused on digital. Covid is accelerating digital payments — BAC is the clearest example. BAC reported 49% of sales thru digital channels, up from 33% last year.

14% YoY growth in digital banking users. Digital sales now represent

BAC’s virtual financial assistant, Erica, saw a 60% increase in interactions and its Zelle P2P payments volume was up 40% YoY.

Source: Bank of America, PeerIQ

PNC — Launched their Low Cash Mode offering for virtual wallet customers, which could cut down its $150 MM in overdraft fees each year.

Ally — Ally Invest self-directed customer assets of $14.5 billion expanded 93% year-over-year, reflecting customer inflows and market activity.

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Source: PeerIQ Analytics Platform

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Coinbase Valuation Skyrockets to 10X its Last Private Valuation

Coinbase, led by CEO Brian Armstrong, had a successful market debut via a direct listing. The crypto exchange platform valuation skyrocketed at 10 times its last valuation as a private company.

The stock swung as low as $310 and as high as $429 (~$115 Bn market cap) in a volatile day of trading. Coinbase stock closed its IPO day at $328 at a valuation of $85 Bn to close the day.

How has it performed since then? The stock traded down to $342 (still above its IPO price of $250) to close with a market cap of $67 Bn by week’s end. Under a direct listing format, insiders are not locked up which might explain the drop.

Coinbase also reported dramatic growth in crypto activities in Q1 (from 2 MM to 6 MM) and 56 MM verified users.

PeerIQ Hot Take: We expect CoinBase to continue to put up several strong quarters. However, we expect the SEC to approve several BitCoin ETFs by year’s end which would commoditize access and fees to BitCoin. Also, our industry sources indicate that at least 8 major brokerage companies are considering rolling-out crypto trading features by year’s end.

Coinbase made a choice to focus on trust by embracing regulation, making it the most secure platform in the industry.

Cross River is the bank behind the scenes that started banking Coinbase in 2015.

Cross River provided a Banking-as-a-Service solution — specifically providing wires and ACH transactions at scale via API.

Over $100 Bn in market cap issued, and all stocks are up double digits.

Source: PeerIQ Analytics Platform

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