Aust
ralian listed electronic payments company Tyro is tipped as the next company to exit the banking market after Challenger on Tuesday announced its banking operations were up for review.
It appears that finanFollowing
cial companies which went to great lengths to obtain a banking licence now want out.
Neobank Volt closed in June and gave back more than $100m in deposits to its customers after trying to raise capital to remain viable.
Now it appears that Challenger may do the same.
It told the market during its results on Tuesday that it had hired advisory firm Gresham for a review of its bank, only a year after it talked up its prospects under its former management and gained a banking licence from the Australian Prudential Regulation Authority.
Maybe Apollo played a part in the decision given it is a major shareholder in Challenger and it has struck a joint venture with the private equity firm for structured and asset-backed lending.
Banking is a scale game and to compete successfully, new players need to differentiate themselves from the major lenders. They need significant access to capital, a compelling competitive advantage and deep management bench strength to build scale successfully in what is already a crowded market.
Troubleshooters in the technology space believe Eftpos payments provider Tyro should hand back its banking licence to APRA because it has lost its way since it listed in 2019 with a market value of $1.37bn.
Tyro’s value is now less than half of that at $518m and it reported an $18m loss for the six months to December.
Building the bank has been a drain on Tyro financially, and experts say that closing the bank will free up capital to invest in technology and grow its core business of electronic payments through Eftpos machines.
Initially, the strategy was to use the bank to grow its customer numbers.
Delivering full-year results for the first time as chief executive, Nick Hamilton said that Challenger had started a strategic review of its bank to consider if the bank will release the expected benefits in the time frame anticipated, and its alignment with Challenger’s strategy. Challenger on Tuesday told the market its bank booked an $11m loss, reflecting significant regulatory and integration expenses. It purchased the MyLife bank from Catholic super in December 2020 for $35m.
Since the acquisition, lending has become less attractive in a rising interest rate environment and with a weaker economy.
Mr Hamilton said it was becoming apparent the bank was unlikely to realise the expected benefits in the time frame anticipated.
Market experts believe that Challenger may opt to shut the bank rather than sell the operation. A buyer could scoop up the loan book that it inherited from its acquisition of MyLife that had $117m of loans and $147m of deposits when purchased.
Challenger’s shares closed down 10 per cent after a 57 per cent fall in its annual net profit to $254m compared with the previous corresponding period, driven lower by wider credit spreads and lower equity markets driving unrealised mark-to-market.
Net profit of $254m reflected wider credit spreads and lower equity markets, Challenger said.
This came with a 10 per cent fall in assets under management with Challenger marking its investments to market.
