Inside the Bank of London, the unicorn that had an “immediate” need for cash

In December 2021, the Bank of London unveiled a glitzy US headquarters in New York. It was part of a global expansion of the fledgling bank founded by ex-Barclays executive Anthony Watson, which boasted ex-Goldman Sachs Harvey Schwartz and Labor bigwig Peter Mandelson on its board.

The offices have had a turbulent history: they once housed family office Archegos Capital Management, whose implosion helped bring banking giant Credit Suisse down with it.

Just over a year later, the Bank of London’s New York office was left largely empty while staff across the Atlantic were forced to share space with an air filtration company owned by the husband of one of the bank’s executives. The cardboard boxes separated the workers from the two companies, according to two people familiar with the situation, who said the bank was trying to save cash by skimping on WeWork’s bills.

By July this year, the fintech was asking investors for more money, saying it had an “immediate” need to raise millions of pounds in regulatory capital. It managed to secure £42m in fresh funding over the summer.

The London bank announced its fundraising earlier this month, just days after UK tax authorities filed a petition to wind up the company over unpaid debts. A bank spokesman said at the time that the two events were unrelated. Watson also resigned a few days earlier.

These events marked a crash back to earth for the Bank of London, which has positioned itself as one of the UK’s most promising tech upstarts since receiving a banking license from UK regulators in 2021, when it boasted that he exceeded a $1 billion valuation that he lent. unicorn status”.

Instead of making money by accepting customer deposits and making loans like a traditional lender, the Bank of London set out to dominate the settlement and clearing market, aiming to move money around the world faster, cheaper and more securely than its rivals such as NatWest and Barclays.

The Bank of London is one of a number of innovative financial start-ups in Britain that have proved fertile ground for “challenger banks” seeking to disrupt traditional lenders – a bright spot in the country’s post-Brexit landscape. UK regulators have been at the forefront of so-called sandboxes designed to encourage innovation, since they have been copied around the world.

Rupak Ghose, a fintech consultant and former financial research analyst at Credit Suisse, said the events that came to light this month raised questions about the Bank of London’s governance.

“This is particularly surprising given that this is one of the first new UK clearing banks in hundreds of years and we would have expected regulators to have been more vigilant,” he added.

The bank attributed the petition to HM Revenue & Customs – since withdrawn – to an administrative error and said it had repaid the tax authorities in full. It then announced a further £42m funding from investors led by investor and board member Mark Tluszcz.

If the fundraising had not taken place this summer, the bank would have prepared contingency plans for a solvent liquidation, the Financial Times previously reported.

The bank said in a statement that it is “moving forward with new leadership, a clear strategy, a strong financial position and the recently reaffirmed support of its investors.”

He declined to comment further on the points raised in this article.

The Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority also declined to comment.

The London bank was first founded in 2016 by Watson, a former crypto entrepreneur who last year received a CBE for services to the LGBT+ community. He was among 50 business leaders chosen by the FT in 2013 for their advocacy work for LGBT+ people. The 47-year-old, whose career has included spells at Barclays and Nike, originally studied theology with the intention of becoming a minister.

As well as Mandelson sitting on the board of the bank’s parent company, Watson has cultivated close ties to the Labor party, donating nearly £500,000 to the party and politicians since 2015, including Angela Eagle, Owen Smith and Yvette Cooper, official records show. .

Amidst a sea of ​​banking chiefs who choose their words carefully, Watson is notably candid. He once told the media that a payment business he worked on at Barclays, called Pingit, had “amazing” traction and “only porn stars get that kind of traffic.”

Watson has become known for his Instagram profile, which showcases his travels on private jets and high society events.

He previously told the Mail on Sunday: “I will not apologize for the way I look or for my success. . . I’ve put my money on it – if I was chief executive of Lloyds I probably wouldn’t be as extravagant as I am with my personal life on Instagram.”

Beyond his online presence, former colleagues have described Watson as a “volatile” leader who doesn’t like to be challenged.. Watson declined to comment on their description.

In its early days, the Bank of London recruited several employees from 10x Future Technologies, a fintech founded by former Barclays chief executive Antony Jenkins. Although it claimed at launch that it was “on track” to have 3,000 staff globally, the London bank recorded an average of just 37 staff in its latest accounts from 2022 and now has around 300, according to the provider of PitchBook data.

The bank’s business model is unusual. The loss-making start-up, which earlier this week said it had about £500m in deposits, says it is immune to traditional bank operations because it parks them at the BoE rather than lending them out. It says it offers depositors rates of up to 3.82% for accounts that give one day’s notice to access funds, rising to 4.65% for accounts with up to 180 days’ notice. It aims to make money from payment services and by franchising its technology to enable corporate clients to offer regulated banking services under their own brands.

Even before this month, it faced a series of setbacks. The London bank was nearly five months behind its original schedule to get restrictions on its banking license lifted, according to a document seen by the FT.

A former senior employee said he could never get answers to basic questions about its capitalization.

Its latest accounts show a loss of £13m in 2022. Its July presentation to investors – which said the bank had an “immediate” need to raise £18.5m of regulatory capital – set that in 2024 the company lost £27m in earnings before interest, tax, depreciation and amortization but predicted the bank would make a “monthly profit” by August 2025 and generate more than 624 million pounds in ebitda by 2030. Revenue is expected to grow from just £11 million in 2024 to more. over £1 billion in 2030.

The bank also suffered the departure of key executives. Both its group chief operating officer, Jim Ditmore, and group chief compliance, risk and security officer, Bill Dennings, left in 2022. Its chief markets officer, Shaunt Sarkissian, left the following year, and non-executive director and former regulator Monique Melis left the parent company’s board in July.

Recent fundraising hasn’t stopped the exits. Several of the bank’s U.S. employees, including its regional technology leader, have been laid off in recent weeks, according to two people familiar with the matter. Its head of compliance and money laundering reporting, Ben Tallick, announced he was leaving the bank in a LinkedIn post last week.

Meanwhile, British regulators have received a formal complaint about the bank’s governance, according to a person familiar with the situation. Complaints include concerns about staff turnover and vetting new hires, the person added. While the person said regulators are looking into the complaint, it’s too early to determine any outcome.

The bank has contracted a convicted fraudster to work on its finance team, according to five people familiar with the matter. In 2022, Gareth Booth joined as a contractor – two years after he was convicted of defrauding his previous employer of £587,000 and given a custodial sentence. He was also banned by the Solicitors Regulation Authority from working in a law firm. Watson was initially unaware of Booth’s conviction, but decided to keep him after learning about it, according to two former employees.

The bank said Booth was a contractor of the holding company and not an employee, and that he “no longer has any role, contractor or otherwise, within the group”.

Booth did not respond to a LinkedIn message seeking comment. Watson did not provide a comment for publication.

Despite making losses, delaying regulations and signing few big clients, the London bank positioned itself as a bidder for SVB UK last year during a crisis weekend that ended with HSBC buying the collapsed tech lender’s local unit for 1 pounds sterling.

In a memo to staff last year, shortly after its bid for SVB UK became public, Bank of London co-chair Rebecca Skitt said: “Our credibility on so many levels is much greater, with many messages of to extremely seniors. people in government, regulation and business, applauding the focus, ambition and relevance of what we have done in the wake of the biggest bank failure since 2008.”

She added: “So much will be written about this chapter in the UK banking industry in the coming weeks. We are a part of this story.”

Additional reporting by Emma Dunkley and Martin Arnold in London