Alt Lending week ended 21st October 2022

Revolut shifts trading clients to Lithuania. Blames Brexit

It seems that Fintech start up Revolut is moving the hosting of a million of its trading clients from the its UK trading subsidiary to its to Lithuania. Apparently, this is because the UK regulator has not yet granted the outfit a Mifid licence which would allow the company to market its products to its European clients. A couple of thoughts. Firstly did the clients concerned get a say in this and secondly why is the FCA so tardy in granting the licence. Frankly I don’t know what to think about this. I am not a fan of the FCA which is notoriously slow in responding to market events, It is obvious however that there is something about Revolut that doesn’t seem quite the ticket hence the delay in approvals. I don’t think I would like to be carrying out trades with a company that is so far removed from the markets it is trading in. I also think clients should ask themselves what is going on. Caveat Emptor still makes sense in these digital days.

Is the Eurozone to be targeted by the bond vigilantes yet again.

One or two recent articles in various newspapers have focussed on the pleasure in the Eurozone at Britain’s discomfiture during recent market turbulence. I do not know whether the UK pensions industry has sorted itself out or not but, for once, Andrew Bailey’s strategy to put a time limit on funds to sort out their awry positions seems to have stemmed the market panic. It was not as if we were discussing economic fundamentals in any case. Several Eurozone economies are in a worse state than the UK. Jeremy Warner writing in today’s (19th OCT) Telegraph says the UK was just first on the list and the Eurozone will be next. Supposition I guess but what everyone failed to comment on was that if you offer smart traders a one-way bet, they will always take it. They are they to make money nothing else. No loyalty, no ethical values. Europe will come into the cross hairs at some point and I would think that Europe’s commercial lending banks will be in the front line. For one it will not be the same factors influencing everyone. The current inflationary situation is hitting all economies differently. May you live in interesting time as the Chinese curse says.

More Nasty Surprises may be waiting somewhere in the financial system

It seems lots of opinion writers in the business sections are anticipating more nasty shocks for lenders but don’t know where they might come from. It was obvious that not too many people knew about LDI’s (Liability Driven Investments) before the doomed mini budget and the immediate market overreaction and the fact that the old lady was able to restore order so quickly shows that the situation was not as serious as first thought. Nevertheless there will clearly be a need for some lenders to look very carefully at the risk profiles of their portfolios over the next couple of months. In the UK where a surge of bad debt is expected in mortgage books our new chancellor is mulling over windfall profits for lenders as rates rise. That could work out to be lose – lose for all concerned. As rates rise inexorably zombies will stalk the street as if from nowhere. How is it all going to end up I am not sure but the whole of Europe and North America is going to be a chilly place this winter.