Coinbase partner ClearBank posts first full-year of profit as revenue almost doubles
Charles McManus, CEO of ClearBank, speaks at the Innovate Finance Global Summit in April 2023.
Chris Ratcliffe | Bloomberg | Getty Images
ClearBank, a British financial technology firm powering payments for the likes of Coinbase, scored its first full year of profit after higher interest rates helped drive a 91% jump in revenues.
The firm swung to an £18.4 million ($23.3 million) pre-tax profit in the year ending Dec. 31, 2023, according to financial statements released Thursday. That’s up from a £7.1 million loss in 2022.
The bank first reached profitability on a monthly basis in November 2022. This is the first time it has reported profitability on an annual basis.
ClearBank’s first profit comes on the back of a near doubling of its total income. ClearBank saw overall revenue jump 91% year over year in 2023 to £111.3 million.
The firm benefited heavily from high interest rates, which have driven a spike in deposits as consumers and businesses look to gain more bang for their buck by storing cash in interest-bearing accounts.
Tide, one of ClearBank’s major customers in the U.K., has been offering a 4.33% interest rate for its business customers, with advertising across buses and London Underground trains promoting the punchy offer.
Charles McManus, ClearBank’s CEO, told CNBC that the firm was a clear beneficiary of higher rates — but was quick to stress ClearBank isn’t reliant on interest income and that transaction revenue has been growing healthily as well.
There was “no single driver” of ClearBank’s positive performance in 2023, McManus said, adding ClearBank benefited from a number of things, such as its clearing business for authorized electronic money firms and growth in the use of bank-to-bank payment services amid higher credit card fees.
“We’ve built the bank and the business model over a number of years,” McManus told CNBC in an interview. “You’re seeing flavors of it across our business lines.”
Higher deposits
However, it’s hard to avoid the fact that higher deposits were a key driver of ClearBank’s performance for the year. The firm says net interest income grew by 142% to £81.9 million, as deposits reached £6.1 billion.
One key driver of deposit growth for ClearBank last year was the collapse of Silicon Valley Bank, a key bank used by fintech startups and venture capitalists. The U.K. ring-fenced division of Silicon Valley Bank, HSBC UK Bank, was bought by British banking giant HSBC for £1 and renamed HSBC Innovation Banking.
This drove a rise in deposits for ClearBank, as customers of SVB fled for alternatives.
“The market [has been] under stress in relation to credit, and banks are going bust, whether it’s Europe, the U.S., or concerns in the U.K. And because of the business model in relation to cash, it being a safe haven,” McManus said.
“Rather than just be a safe haven that cash is collateral for the pain schemes,” McManus added. “The more payments we do, the more cash that we actually need to hold as collateral for our clients for Faster Payments,” which is the U.K.’s scheme for sending electronic, sterling payments in an instant.
“Our customers have actually left more cash with us rather than take the the fractional banking risk in relation to Barclays through those stress periods,” McManus noted.
Founded in 2015, ClearBank is a regulated clearing bank and payments institution in the U.K. It provides banking services to the likes of Coinbase, as well as other fintechs like savings apps Chip and Raisin, and business banking startup Tide.
All funds stored in ClearBank accounts are held at the Bank of England, meaning clients holding their money with firms powered by ClearBank’s technology can benefit from high yields on their cash.
ClearBank posted gross fee income of £31.4 million in the full year, with reccurring platform a key driver. Embedded banking end-customers, or customers of ClearBank’s customers, grew 93% year over year to 1.2 million.
In no rush for an IPO
McManus said that ClearBank is in no rush for an initial public offering, adding that it already has a substantial amount of cash on its balance sheet. In 2022, ClearBank raised £175 million in a financing round led by private equity firm Apax Digital.
ClearBank’s chief said it was important that the firm completes an expansion to the U.S. market before deciding on a public listing. He added that a plunge in shares of Cab Payments, a U.K.-listed payments firm, has made it unattractive for a company like his to decide on a listing in the near term.
ClearBank is currently pursuing a European Union banking license via the Dutch central bank. The firm was hoping to have its license application completed by 2023, but now says it expects to obtain its full EU banking license later this year.
McManus said that Brexit has played a role in the firm’s struggle to get a banking license in the EU, as ClearBank is “being looked at very closely in relation to all of that.”
The U.K.’s decision to quit the EU has made it harder for British fintech firms seeking to expand operations in the bloc, as with Britain no longer in the EU single market, financial firms can no longer offer “passporting” rights which allow companies to operate a single U.K. license across all EU member states.
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Boaz Weinstein, founder and chief investment officer of Saba Capital Management, during the Bloomberg Invest event in New York, US, on Wednesday, June 7, 2023.
Jeenah Moon | Bloomberg | Getty Images
Boaz Weinstein, the hedge fund investor on the winning side of JPMorgan Chase’s $6.2 billion, “London Whale” trading loss in 2011, is now taking on index fund giant BlackRock.
On Friday, Weinstein‘s Saba Capital detailed in a presentation seen by CNBC its plans to push for change at 10 closed-end BlackRock funds that trade at a significant discount to the value of their underlying assets compared to their peers. Saba says the underperformance is a direct result of BlackRock’s management.
The hedge fund wants board control at three BlackRock funds and a minority slate at seven others. It also seeks to oust BlackRock as the manager of six of those ten funds.
“In the last three years, nine of the ten funds that we’re even talking about have lost money for investors,” Weinstein said on CNBC’s “Squawk Box” earlier this week.
At the heart of Saba’s “Hey BlackRock” campaign is an argument around governance. Saba says in its presentation that BlackRock runs those closed-end funds the “exact opposite” way it expects companies to run themselves.
BlackRock “is talking out of both sides of its mouth” by doing this, Saba says. That’s cost retail investors $1.4 billion in discounts, by Saba’s math, on top of the management fees it charges.
BlackRock, Saba says in the deck, “considers itself a leader in governance, but is crushing shareholder rights.” At certain BlackRock funds, for example, if an investor doesn’t submit their vote in a shareholder meeting, their shares will automatically go to support BlackRock. Saba is suing to change that.
A BlackRock spokesperson called that assertion “very misleading” and said those funds “simply require that most shareholders vote affirmatively in favor.”
The index fund manager’s rebuttal, “Defend Your Fund,” describes Saba as an activist hedge fund seeking to “enrich itself.”
The problem and the solution
Closed-end funds have a finite number of shares. Investors who want to sell their positions have to find an interested buyer, which means they may not be able to sell at a price that reflects the value of a fund’s holdings.
In open-ended funds, by contrast, an investor can redeem its shares with the manager in exchange for cash. That’s how many index funds are structured, like those that track the S&P 500.
Saba says it has a solution. BlackRock should buy back shares from investors at the price they’re worth, not where they currently trade.
“Investors who want to come out come out, and those who want to stay will stay for a hundred years, if they want,” Weinstein told CNBC earlier this week.
Weinstein, who founded Saba in 2009, made a fortune two years later, when he noticed that a relatively obscure credit derivatives index was behaving abnormally. Saba began buying up the underlying derivatives that, unbeknownst to him, were being sold by JPMorgan’s Bruno Iksil. For a time, Saba took tremendous losses on the position, until Iksil’s bet turned sour on him, costing JPMorgan billions and netting Saba huge profits.
Saba said in its investor deck that the changes at BlackRock could take the form of a tender offer or a restructuring. The presentation noted that BlackRock previously cast its shares in support of a tender at another closed-end fund where an activist was pushing for similar change.
At the worst-performing funds relative to their peer group, Saba is seeking shareholder approval to fire the manager. In total, BlackRock wants new management at six funds, including the BlackRock California Municipal Income Trust (BFZ), the BlackRock Innovation and Growth Term Trust (BIGZ) and the BlackRock Health Sciences Term Trust (BMEZ).
“BlackRock is failing as a manager by delivering subpar performance compared to relevant benchmarks and worst-in-class corporate governance,” the deck says.
If Saba were to win shareholder approval to fire BlackRock as manager at the six funds, the newly constituted boards would then run a review process over at least six months. Saba says that in addition to offering liquidity to investors, its board nominees would push for reduced fees and for other unspecified governance fixes.
A BlackRock spokesperson told CNBC that the firm has historically taken steps to improve returns at closed-end funds when necessary.
“BlackRock’s closed-end funds welcome constructive engagement with thoughtful shareholders who act in good faith with the shared goal of enhancing long-term value for all,” the spokesperson said.
Weinstein said Saba has run similar campaigns at roughly 60 closed-end funds in the past decade but has only taken over a fund’s management twice. The hedge fund sued BlackRock last year to remove that so-called “vote-stripping provision” at certain funds and filed another lawsuit earlier this year.
BlackRock has pitched shareholders via mailings and advertisements. “Your dependable, income-paying investment,” BlackRock has told investors, is under threat from Saba.
Saba plans to host a webinar for shareholders on Monday but says BlackRock has refused to provide the shareholder list for several of the funds. The BlackRock spokesperson said that it has “always acted in accordance with all applicable laws” when providing shareholder information, and that it “never blocked Saba’s access to shareholders.”
“What we want is for shareholders, which we are the largest of but not in any way the majority, to make that $1.4 billion, which can be done at the press of a button,” Weinstein told CNBC earlier this week.
WATCH: CNBC’s full interview with Saba Capital’s Boaz Weinstein
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