Boris says he’ll be back. He won’t. But, what about London and the banking sector who wanted a modern Sir Lancelot and ended up platforming Mayor Lies-A-Lot for Downing Street disgrace? London and its banks have had little to cheer since that dreadful error of judgement. However, that could be about to change. First, we should take a look at the financial world which is not quite throwing a Nadine Dorries pity party but will be acutely aware of the party times in technology. The top 100 names in US tech are up 35% year-to-date and Apple after a 42% rocket ride is about to hit the $3 trillion valuation mark again. Recession talk, interest rate rises, tighter lending conditions and a consumer cost of living crisis are not ideal financial conditions but if AI has a future why can’t finance? In other words, is there evidence of investors and financial leaders looking through the current conditions(nobody knows!) and seeing future opportunities? Let’s consider the following:
- The mighty US stock exchange for technology, the Nasdaq, has just bought a financial risk management software company, Adenza, for $10.5 billion. This is REAL executive action, not words, which signal confidence. As for the valuation, the future must be very interesting. That $10.5 billion price tag equates to a whopping revenue multiple of 18x.
- Closer to home, another fintech software deal got over the line this week. Terry Clune has sold his Immedis payroll software company to US tech multinational, UKG, for $600 million. The Irish State through its ISIF fund is also a related beneficiary of that sale but it’s not just Ireland feeling the love for its fintech support strategy.
- Its London Tech Week and we should all remind ourselves that, despite Brexit, London actually attracts more fintech start-up investments than any other global hub. In 2022 its $10.1 billion haul beat off competition from the Californian Bay Area and New York. There is no denying the City’s powerful positioning with 45% of all London VC investment going to fintech. So, it is not hugely surprising to read this week that global VC titan, Andreessen Horowitz(a16z), is putting its first international office in London.
If the above feels more tech than traditional financial services, then consider the US Regional Banking index which has been battered by SVB and First Republic Bank failures. The index has bounced 20% from its year lows but it’s not the only battered part of the financial sector seeing an interesting return to favour. London’s stockbrokers have been starved of juicy fees in the IPO market wasteland but that didn’t stop Deutsche Bank in April buying Numis Corp for just over $500 million. And, there’s more…
- This week Evelyn Partners(ex- Smith & Williamson) have announced the purchase of City boutique wealth manager Dart Capital.
- If you’re looking for even braver moves, how about the proposed management/leveraged buy-out of Canaccord Genuity (ex-Collins Stewart) for more than $800 million.
- Smaller brokers have also been busy with Cenkos and finnCap announcing a merger in March.
Some of these moves will be perceived as defensive or survival strategies in challenging conditions but the underlying vibrancy of the fintech and start-up arena does prompt a more opportunistic thought. It also requires an understanding of London’s traditional positioning as the most important financial hub in the world, uniquely straddling time zones in Asia and the US. This concentration of enormous capital flows and financial experience is a perfect building platform for…….. AI-powered solutions. Note, the recurring ‘must have’ in every AI strategic discussion or advisory note is DATA. It’s difficult to think of any financial hub other than London with a richer concentration of long-run data, transaction activity and a workforce knowledgeable enough to harness such “digital oil”. The reference to data as the oil of the digital economy could be considered apt. Indeed, the sector blessed with the richest data might need more than a golf deal to ‘greenwash’ its reputation. Yep, banks don’t get much customer love but you can see why bank executives are keen to embrace generative AI.
Think about every bank customer having its own AI ‘Alexa’ as a financial assistant. Personalisation, lower costs, speed of service, compliance, security, fraud prevention and investment/saving mentorship are hugely exciting upgrade opportunities for both banks and their customers. And remember, the banks already have incredibly valuable data about all those customers. As for London… Boris and his notorious “IT lessons” in Shoreditch may leave an unintended legacy. Technology and AI could be the City’s saviour….