Robinhood is bleeding. Jamie Dimon is spending.
Good afternoon, and welcome to Protocol Fintech. This Monday: The logic of a JPMorgan-Robinhood deal, the CFPB’s “long-dormant authority” awakens, and Chime preps for an IPO.
On the daily
This is the first daily edition of your favorite fintech newsletter! As we publish five times a week, Monday through Friday, you’ll find different weekly features alongside a deep dive into the news of the day, an important company or a big new trend. Today, it’s all about Robinhood. And to help plan your week, check out “Coming up,” our calendar that doesn’t just tell you what’s happening and when — it also tells you why each event matters. Thanks for reading, and let us know what you think.
Is Robinhood up for sale?
Fintech is disrupting Wall Street. Or is it the other way around? As one new-wave company bleeds billions, a member of the old guard is getting ready to spend. Those trends could collide in an unlikely — but not impossible — megadeal.
We’re talking about JPMorgan Chase and Robinhood. One dates back to early Wall Street, while the other was inspired by Occupy Wall Street.
- CEO Jamie Dimon once said the bank should be “scared shitless” about the rise of fintech. He’s vowed to spend $12 billion on tech, partly to take on competitors including fintech disruptors.
- Meanwhile, one of those disruptors, Robinhood, whose popular, commission-free app upended online stock trading, saw its shares sink Friday to an all-time low of $12.77, shedding 85% of its market cap — more than $60 billion — since its shares peaked briefly after it went public in July.
- Robinhood has lost so much value there’s now speculation that it could be an acquisition target.
Could JPMorgan come to Robinhood’s rescue? The proposal intrigued some people we spoke to.
- JPMorgan retreated from online brokerage in 2005, divesting its BrownCo division to E-Trade. It returned to the business in 2018, sending shares of discount brokers diving with its promise of 100 free trades for the first year.
- The big bank made two key hires in its self-directed investing unit in September, with plans to add margin and securities-based lending products this year.
- Robinhood would add a lot of younger customers who trade actively, instantly bulking up the JPMorgan unit. It would also give the bank some exposure to crypto, which is popular with Robinhood customers. Robinhood just introduced a crypto wallet, too.
- Robinhood declined to comment. JPMorgan could not immediately be reached for comment.
The problem: Robinhood probably wouldn’t go for it. And because of its stock structure, it wouldn’t have to sell.
- Selling to JPMorgan would probably be “a complete non-starter for Robinhood,” said Rob Siegel, a Stanford management lecturer. For Vlad Tenev and Baiju Bhatt, “selling to one of the world's largest banks and financial institutions would be inconsistent” with their stated values.
- It would be a huge culture clash. Just for example, Robinhood has embraced remote work, like most tech companies, while JPMorgan was pushing a return to the office up until the point the omicron surge made that impossible.
- Going hostile won’t work. Tenev and Bhatt control roughly 65% of the voting power through super-voting shares.
- Even with the dramatically depressed valuation, Robinhood may not be that attractive, said Melody Brue of Moor Insights & Strategy. There are issues to deal with in Robinhood’s business model, she said, led by “the questionable future” of payment for order flow, and Robinhood’s heavy reliance on volatile crypto revenue.
- While JPMorgan may be looking to buy, the bank would more likely seek “lower-priced deals” and would see Robinhood “as more of an overpriced brand than as a missing set of product capabilities,” Alex Johnson of Cornerstone Advisors said.
Don’t write off a deal. A struggling trading app being gobbled up by a big bank is not as far-fetched as it might have seemed just a year ago, when Robinhood users were upending Wall Street by sending meme stocks to the moon.
- The Wall Street giant, worth more than $400 billion, could afford it. And Robinhood is struggling, Johnson noted: It has “a tough time making money unless customers are being super active buyers and sellers, especially of stock options and of crypto.”
- Buying a company with 19 million users and 22 million funded accounts would give JPMorgan access to a significant customer base. "The real advantage would be buying younger customers,” Siegel said.
- Then there’s Dimon’s disdain for fintech, Michele Alt of Klaros Group said, suggesting going after Robinhood is possible, though the M&A team at JPMorgan would be “clear-eyed” about the risks and benefits of a deal.
- Besides, for Dimon, what better way to stick it to the fintech newcomers than to buy one?
“Stranger things have happened,” Siegel said. Who knows? Dimon, who just got a whopping raise, clearly feels pressure to fend off the fintech threat. There was a time when he was a disruptor: The Travelers deal to buy Citi, in which he played a key role, smashed together commercial and investment banks. “We intend to win,” Dimon said on the JPMorgan earnings call, referring to the bank’s big tech investment. “And sometimes that means you’ve got to spend a few bucks.”
A MESSAGE FROM CLARI
Everyone wants to IPO—but how do you really get it done, in a way that moves markets and inspires investors? You need the type of confidence and growth that starts from within. WalkMe’s CFO, Andrew Casey, shares how he rethought quotas, metrics, and what drives his teams, so WalkMe could go public—and go big.
On the money
Chime has hired Goldman Sachs for its IPO. The neobank could be valued at close to $40 billion, which is way up from its August funding at $25 billion. The offering could also test investors’ wavering appetite for new fintech issues.
The crypto crash which turned into a rout on Friday has wiped out $1 trillion in value. The value of bitcoin has fallen by almost half since November.Crypto.com has partnered with the Australian Football League in a $25 million sponsorship deal. The cryptocurrency exchange is specifically backing the women’s league — a targeted way of addressing crypto’s gender gap and courting an underserved demographic.
This may be the least favorite phrase of regulated businesses: “long-dormant authority.” But that’s what the Consumer Financial Protection Bureau’s Ashwin Vasan and Wei Zhang said the agency would use to rein in credit-card companies. The agency is considering rules under the Dodd-Frank Act’s Section 1033 that would give American credit-card customers — who pay about $120 billion a year in interest and fees — more control over their own data, freeing them to shop around. That could be a boon to fintech startups that have championed open banking.
El Salvador is doubling down on its bitcoin bet with a plan for $10 million in bitcoin-backed microloans for small businesses. “The bitcoin small loans will provide access to digital money for the unbanked while helping them create a credit history,” said Mónica Taher, El Salvador’s head of Technological and Economic International Affairs.
Federal Reserve Chair Jerome Powell thinks CBDCs and stablecoins can just get along. "Well-regulated, privately issued stablecoins could coexist with a CBDC,” he told Sen. Pat Toomey in a follow-up to a recent Senate hearing on a government-backed digital currency.
U.S. House representatives are still struggling to understand bitcoin mining. In the first-ever U.S. House hearing on bitcoin mining last Thursday, witnesses testified on the environmental impact of bitcoin mining’s energy usage. The problem was that only two out of five witnesses could explain why bitcoin’s proof-of-work mechanism can’t be substituted by proof-of-stake.
American Express and Capital One’s Q4 2021 earnings calls are slated for tomorrow. AXP’s average estimated earnings per share is at $1.78, down 21.6% from last quarter. COF’s average estimated EPS is at $5.14, down 25.1% from last quarter.
Gwyneth Paltrow wants you to learn about NFTs. The virtual “BFF Minted” event happening on Wednesday lists over 50 participating women leaders in crypto, art and business, including the likes of Mila Kunis, Paltrow and Tyra Banks. (Read more about BFF in Protocol Pipeline.)
Nasdaq, LendingClub and Meta Financial’s earnings calls are set for Wednesday. NDAQ’s average estimated EPS is at $1.78, with no change from last quarter. LC’s average estimated EPS is at $0.21, down 72% from last quarter. CASH’s average estimated EPS is at $0.77, up 54% from last quarter.
Tech regulation is coming. How does Big Tech respond? This Wednesday, join Protocol’s Ben Brody and Rep. Lori Trahan for a conversation on what lawmakers want to achieve in tech regulation.
How do you tokenize financial products? The virtual “Finance on the Blockchain” conference Thursday will see leaders from blockchain and traditional financial firms unite to discuss digital asset securities. Marketed as an educational and networking event, it will feature keynote presentations from SEC Commissioner Hester Peirce and former CFTC chair J. Christopher Giancarlo.
Robinhood is on track to report more losses. With Robinhood’s earnings call scheduled for Thursday, HOOD’s average estimated EPS is -$0.34, up 83.5% from last quarter, but still failing to return profits for investors. Its heavy dependence on volatile crypto trading revenue could be a key factor.
Visa and Mastercard’s earnings calls are also scheduled for Thursday. V’s average estimated EPS is at $1.69, up 4.3% from last quarter. MA’s average estimated EPS is at $2.19, down 7.5% from last quarter.
A MESSAGE FROM CLARI
Club Revenue on Nasdaq digs into the strategies driving revenue growth at the highest performing companies. Tune in as Clari’s CMO Cornelius Willis interviews innovative revenue leaders to learn their tactics for building sales teams that drive unmatched success for their customers.
Thanks for reading — see you tomorrow, when we’ll have a roundup of the latest fintech deals.