Coinbase’s $86 Bn IPO; Q1 Bank Earnings Highlights; IRS Wants to Tax Crypto
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.
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.
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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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.
In the News:
- Consumer Prices in U.S. Advance by Most in Nearly Nine Years (Bloomberg, 4/13/2021) The consumer price index increased 0.6% in March, the highest in nine years, which was driven by an increase in travel and commuting.
- CFPB Sets Stage for More Enforcement. but What’s the Script? (American Banker, 4/13/2021) The CFPB’s decision to rescind Trump-era guidance on what constitutes as an abusive practice, could signal that the bureau will be more willing to pursue enforcement actions against firms that are abusing consumers.
- IRS Commissioner Says Crypto Reporting Standards from Congress Would ‘Absolutely’ Help Close U.S. Tax Gap (The Block, 4/13/2021) IRS commissioner Rob Portman is drafting a bill that would establish crypto tax reporting requirements.
- Buy Your Own All-Digital Neobank from a Portfolio of Prepackaged Brands (Financial Brand, 4/13/2021) Banks and credit unions can now purchase a prebuilt neobank of their own.
- Banks’ Loan Slump Signals Strength of Post-Lockdown U.S. Economy (Bloomberg, 4/14/2021) Borrowers are paying down their balances and aren’t demanding more financing, which is a sign that American consumers and corporations are ready to propel an economic rebound.
- Embedded Fintech Versus Embedded Finance: Jumpstarting New Product Innovation In Banks (Forbes, 4/12/2021) Embedded finance is expected to generate $230 Bn in revenue by 2025.
- Checkout.com Ships Payouts Product (Finextra, 4/13/2021) Cloud-based global payments platform Checkout.com, announced the launch of its payouts product, which would allow merchants to make payouts in real-time.
- Clubhouse Rolls Out Payments to Over 60K Creators Following Initial Test (Tech Crunch, 4/13/2021) Clubhouse expects to have their new payments functionality rolled out to all content creators over the next few weeks.
- Coinbase: A New Beginning (IVP, 4/14/2021) Coinbase’s market debut is culminating as the largest U.S. company opening in exchange history.
- Coinbase Valued at $86 Billion in ‘Landmark Moment’ for Crypto (NY Times, 4/14/2021) After a successful market debut, Coinbase is now worth more than 10 times its last valuation as a private company.
- Better.com nabs $500 million investment from SoftBank (FinLedger, 4/9/2021) Better.com, led by CEO Vishal Garg, raised $500 MM in Series D funding, which values the company at $6 Bn.
- Scientists may have figured out how to make a warp drive work (Boingboing, 4/1/2021) All scientists have to do is figure out a way to capture spacetime in a contractual bubble with hundreds of times the mass of Jupiter and warp drive may become a reality.