Uncle Sean's Update - 7/22/22

​Happy Friday!!!
 
After digesting a slew of publicly traded earnings announcements, it was a fairly light week in other news with all eyes on the FOMC meeting next week.  Here is the abbreviated Uncle Sean Update for 7/22/22:
 

• Patriot Bank (FDIC 33928) announced the mutual termination of merger agreement with American Challenger (actually a reverse merger where American Challenger was acquiring a charter) stating the merger was terminated because “not all closing conditions of the Merger Agreement can be satisfied under the current structure and agreement.”
  • The American Challenger press release went on to specifically call out the “recapitalization” portion of the merger agreement.  “Patriot would have completed a capital raise of at least $875 million to enable the pro forma company to implement American Challenger’s business plan (the ‘Recapitalization’).”
    • Not too surprising that this was a sticking point in our current funding / economic environment – that’s a lot of additional capital raise for a $975M bank.
  • American Challenger is now “exploring a sale of the company and has hired Citi as its strategic advisor in this process.”  😲

 

• Varo Bank (FDIC 59190) made the difficult decision to lay off 75 employees and reduce marketing spend in an effort to control cash burn (Varo net loss for 1Q2022 was $84M against $264M in remaining equity).  Varo also announced the launch of a new business unit, Varo Tech.
  • Warning – an unsolicited Uncle Sean op-ed ensues:
    • Looking at their call report data (source: FedFis – see what I did there), it doesn’t take long to see that a rising interest rate environment will not help Varo the way it does most banks (i.e. “NIM for the win”) due to the fact that Varo still operates primarily on an interchange model (swipe fee) for non-interest income. 
    • This means that their revenues are actually more at risk when interest rates rise (due to consumers tightening their belt on spending).  Compounding this is their de novo status which hamstrings them at a 10% Tier 1 leverage ratio for the first 3 years – the punchline here is that it will be very difficult for Varo to grow their way out of this by increasing loans while being forced to maintain a 10% Tier 1 ratio when recurring losses are contributing to a declining equity position.  Not to mention it is a different environment now for trying to raise outside capital.
      • I am rooting for Varo (always have), but the road ahead looks tough.

 

• The FBI is warning investors and Financial Institutions about fake crypto apps that defrauded 244 victims out of $42.7M between Oct 2021 and May 2022.

 

• Gemini (crypto exchange) conducts a second round of layoffs less than two months after cutting 10% of staff.

 

• This is worth watching closely…..  The DOJ and the SEC brought fraud and first-ever crypto insider trading charges against three Coinbase employees.  This case has far reaching ramifications because the SEC is alleging that the 9 Coinbase tokens constitute securities offerings (yep - there’s the “s” word).  CNBC has a good write-up covering both sides of this issue.

 

• Truebill (which was acquired by Rocket Companies on 2021) announced that they are changing their name to Rocket Money in August.

 

• Notable FinTech funding for the week:
  • Meow (crypto yield for corporate treasuries) raised $22M in Series A funding round.
  • X1 (smart credit card platform) raised $25M in Series B funding.
  • Mahalo Banking (CUSO) raised $20M in funding to continue growth in mobile and online banking solutions for credit unions.
  • Airbase (corporate spend management platform) landed a $150M Credit Facility from Goldman Sachs to expand their corporate card program.
  • TomoCredit (alt credit builder platform) raised $122M in capital comprised of an undisclosed equity and debt to continue to provide credit card lending to over 40 million credit-invisible immigrants and international students with no credit history in the U.S.
  • Halborn (blockchain security firm) raised $90M in Series A funding round – WOW, that’s a big Series A!!!!
  • FairPlay (AI platform to reduce algorithmic bias in lending) raised $10M in Series A funding.
  • Crunchbase (you know who they are – LOL) picked up an oversubscribed $50M Series D round.  Valuation was not disclosed but it was referred to as a “significant up round” by their CEO, Jager McConnell.
    • Some fun facts here…  This news was covered by TechCrunch -- from which Crunchbase was spun out as a wholly independent company in 2015.
    • Uncle Sean loved this part of the article as it really resonated with me in relation to the work that we do here at FedFis:
      • “In both down times and boom times, businesses across industries are faced with the challenge of building sales pipelines and closing revenue. ‘Account-based’ intelligence — i.e., research into potential customers — can help during the prospecting process. But it requires a thorough, vetted source of information and contacts in departments like business development, sales and recruiting.” 
      • Indeed, sir - very nice!!!!

 
 
Random Uncle Sean Stuff:

• WOOHOOO!!!!  Happy Birthday to Aunt Patty and I this weekend as we celebrate being 21 again (for many, many, many decades)!!!  We share the same birthday, but she is 8 hours and 39 minutes older than me – a fact that gets way overused by me every single year - LOL!!!
• Only 36 more days until College Football season!!!!  Check out Nebraska vs Northwestern opener being played in Dublin, Ireland!!!
• I haven’t tried this yet, but this is definitely on my list – take a look at this recipe for balsamic marinated grilled mushrooms.
• And of course the moment you have all been waiting for - Dad Jokes:
  • Oddly enough, the James Webb telescope appears to have located one of my missing socks…
  • 95% of electric vehicles are still on the road (the other 5% actually made it home).  HAHAHAHAHA!!!!
  • My mechanic told me that he found the problem with my car, but it’s going to be expensive to fix.  Apparently it was out of gas…  😊

 
 
Have a GREAT weekend and please stay safe!!!
 
Uncle Sean
 
 
Sometimes known as Sean Mayo – contact me directly for scope and pricing of custom reports / analysis projects at smayo@fedfis.com | 214-604-6961 – or you can contact FedFis Sales Team at 512-960-0911 | info@fedfis.com #FedFisHasTheData FedFis
 
FedFis, LLC disclaimer – The views and opinions of Uncle Sean are of his own and may not necessarily represent the views, endorsements, and/or opinions of FedFis, LLC – we all know he’s a little bit different; but that’s why we love him.