12 ★ FINANCIAL TIMES Tuesday 27 August 2019

COMPANIES

T

he linked dangers of an inverted yield curve

and a slowing economy have hammered bank

stocks in recent months, and profit margins

are already compressing. But the banks’ wor-

ries pale in comparison to challenges con-

fronting the peer-to-peer or “marketplace” lenders — the

start-ups that have set out, over the past decade or so, to

upturn the banking industry.

A few years ago, start-up lenders on both sides of the

Atlantic looked set to reveal that banks were little more

than commodity businesses with high fixed costs. Money

is money, after all, and the peer-to-peer platforms

intended to provide it at a better price by becoming an

internet middleman between borrower and lender —

ditching all that expensive infrastructure in the process.

But the reality has proven more complicated. One can

see this by looking at the profit and loss statements of even

the more established digital lenders. The US’s Lending

Club, perhaps the strongest player in the industry, origi-

nated $3.1bn in loans in its last quarter — and yet still deliv-

ered a small net loss. The UK’s Funding Circle is considera-

bly smaller, and the ink is redder. It gave an indication of

what a slower economy might do to the industry when it

cut its 2019 revenue growth forecast in half, to 20 per cent.

Its shares have lost half their value since June.

These are not birth pangs. Lending Club and Funding

Circle were founded 13 and nine years ago, respectively.

Others, such as Prosper and SoFi, are also getting on.

A slick digital platform, as it turns out, is not enough.

Lenders and borrowers need to be found, and finding them

is difficult. On the lending side, there were not enough

individuals out there willing to put their money at risk in

someone else’s small business or credit card consolidation

loan. The industry solved this by going wholesale, selling

the loans they originate to banks and asset managers, or

bundling them up to be consumed by capital markets.

Year to date, $9bn in marketplace loans have been securi-

tised and sold into markets, according to Finsight.

Hence “peer-to-peer lending” became “marketplace

lending”. One “peer” was cut largely out of the picture.

But the problem of finding borrowers remains, a diffi-

culty reflected in high mar-

keting costs. They eat up

more than a third of revenue

at Lending Club and more

than 40 per cent at Funding

Circle. Much of this goes to

internet advertising, and,

industry insiders say, to

advertising on just two ven-

ues: Credit Karma and L end-

ingTree, where customers can compare and shop for vari-

ous loan products (LendingTree is a public company and,

unlike so many marketplace lenders, it is profitable).

The core problem is that lending is a spread business. It

is about maximising the difference between the cost of

capital and the return on it. Banks are likely to maintain a

permanent edge in the former, given that they can take

government-guaranteed deposits. Because their balance

sheets are leveraged, they can accept reasonably low

returns on loans (4 per cent, say) and still make money.

Yes, banks’ legacy infrastructure drags down their

returns. And there are some borrowers — small businesses

or individuals with spotty credit — that banks are not nim-

ble enough to serve well. But banks’ structural advantages

remain a massive barrier for upstarts. And the challenges

will be greater in a recession, as investors shy away from

riskier loans and towards the safety of insured deposits.

However, there may be a bright spot for the loan market-

places. Those that survive the next downturn may be able

to consolidate the market, gaining scale and spreading

their marketing costs across a larger revenue base. And if

they can prove that they can lend profitably through a

recession, they should come out the other side with more

investor confidence and, as such, a lower cost of capital.

And who is likely to weather a storm?Rhydian Lewis,

chief executive of RateSetter, the UK-based platform,

believes it will be those that follow the “tortoise” model.

That means working with investors with a low cost of

capital (RateSetter, unusually, has stuck with retail inves-

tors looking for an alternative to bank deposits), and

avoiding yield-hungry hedge funds. It means not reaching

too hard for high returns, which will become high losses in

a recession. It means sticking to niches with good borrow-

ers, who are too hard for big banks to serve. Finally, it

means not spending excessively on marketing.

All this, of course, implies slow growth: hence the tor-

toise. But the hares are set for a very nasty couple of years.

[email protected]

INSIDE BUSINESS

FINANCE

Robert

Armstrong

Upstart lenders need

more than a slick

digital platform

Banks’ structural

advantages

remain a massive

barrier for the

upstarts

G R E G O RY M E Y E R— NEW YORK

Genscape, a US company that helped

lift the curtain on opaque energy mar-

kets, is being sold by ownerDaily Mail

and General Trustin the latest deal to

consolidate the business of commodity

flowsdata.

UK-listed DMGT has agreed to sell Gen-

scape for $364m in cash toVerisk, the

companies said yesterday. The price

was more than 38 times Genscape’s

earnings before interest, tax, deprecia-

tion and amortisation of about $9m in

2018, a person close to DMGT said.

Founded in 1999 and based in the US

state of Kentucky, Genscape helped give

energy traders a clearer view of energy

markets, where success often requires

inside knowledge of supply and

demand. In one service, a helicopter

pilot working for Genscape flew above

the tank complex at Cushing, Oklahoma

— the delivery point for US crude

futures — snapping infrared photos to

discern the quantities of oil hidden

inside.

Genscape’s other products include

natural gas pipeline monitoring and

estimates of electricity output derived

from sensors placed near power plants.

The availability of data and prices has

given hedge funds and banks an edge in

markets once dominated by physical

producers, refiners and trading houses.

Research companies and consultancies

have been buying up specialist com-

modity data providers to meet demand.

IHS Markitacquired the agribusiness

intelligence business of London-based

Informa in May and in 2016 bought Oil

Price Information Service, a price

reporting agency.S&P Globalacquired

energy consultancy PIRA Energy Group

in 2016.

New York-listed Verisk, which also

provides risk analysis to the insurance

sector, acquired the energy consultancy

Wood Mackenzie for £1.85bn in

2 015. Genscape will become part of

Wood Mackenzie.

Daily Mail and General Trust

acquired Genscape in 2006 for $130m.

Paul Zwillenberg, Daily Mail chief exec-

utive, has outlined a series of disposals

to narrow its portfolio and strengthen

the balance sheet. “This transaction

marks another major milestone in

DMGT’s continued transformation and

is in line with our strategy,” he said.

Support services

DMGT sells energy data company to Verisk

A L I C E H A N C O C K— LONDON

Vivendi, the French media conglomer-

ate, has taken action in court to fight

the proposed merger ofMediaset’s Ital-

ian and Spanish businesses into a new

pan-Europeancompany.

Vivendi, which ownsCanal + andUni-

versal, said yesterday that it had filed a

request with the court in Milan to allow

it to attend a shareholder meeting at

which the deal will be voted on.

The move is the latest in a rift between

Mediaset, which is controlled by the

former Italian prime ministerSilvio

Berlusconi, and Vivendi, whose major-

ity shareholder is the French billionaire

Vincent Bolloré. In 2016, the pair fell out

after a deal in which Mr Bolloré agreed

to buy the Italian broadcaster’s pay-TV

arm for €800m fell through. In June,

Mediaset announced that it planned to

merge with Mediaset España and create

a Dutch-listed company calledMedia

for Europe. The deal is due to be voted

on by shareholders at an emergency

general meeting on September 4.

Vivendi has a 29.9 per cent stake in

Mediaset but it is deemed illegitimate

by Mediaset as the company claimed

that the way in which the shares were

bought, following the failure of the 2016

deal, was market manipulation.

Italian regulators have ruled that 19.

per cent of Vivendi’s stake must be held

in trust due to antitrust issues as Viv-

endi also holds a 17 per cent stake inTel-

ecom Italia. AsNetflix andAmazon

increase the audiences of their on-de-

mand video and TV platforms, tradi-

tional media companies are looking for

ways to preserve market share through

consolidation or collaboration.

The formation of Media for Europe

has raised concerns from minority

shareholders. ISS, the shareholder advi-

sory company, said “the proposed gov-

ernance structure has the clear goal of

cementing the control of the Berlusconi

family to pursue an M&A growth strat-

egy without losing control of the com-

bined company”.

Mediaset could not be immediately

reached for comment.

In a statement, Vivendi said it would

vote against the deal “because the group

has assessed the rights, or lack of them,

that minority shareholders, and partic-

ularly Vivendi, would have under the

proposed [Media for Europe] bylaws”.

Telecoms

Vivendi takes Mediaset merger fight to court

H A R R I E T AG N E W— PARIS

Arnaud Lagardère,the French media

mogul, amassed more than €200m of

debt at his private holding company,

exceeding the current value of his

shares in the publicly traded conglom-

erate that bears his name, according to

unpublished accounts seen by the

Financial Times.

Through the holding company, Mr

Lagardère owns a 7.3 per cent per cent

stake in the publicly tradedLagardère,

the French media group that includes

the Hachette publishing house and

Relay newsagents, as well as radio,

sports and entertainment assets.

Mr Lagardère, 58, took over the man-

agement of the group after his father

Jean-Luc died in 2003. Since then, its

shares have dropped by a third.

Accounts for 2017 for Lagardère Capi-

tal & Management, the holding com-

pany, provide the first snapshot in a dec-

ade of the scale of Mr Lagardère’s debts.

LC&M had €204m of debt at the end

of 2017, according to the accounts,

which the company has refused to pub-

lish since 2010 when it released the

2009 statement.

Lagardère has come under pressure

fromAmber Capital, a London-based

activist hedge fund that owns a 5 per

cent stake in the company. Amber has

taken legal action to make LC&M pub-

lish its financial accounts, according to

two people familiar with the matter.

Amber declined to comment.

The debt at LC&M has fallen since

2009 when it was €423m but over the

same time period the value of the stake

in the publicly traded group has

plunged, from about €343m to €185m.

That drop in value stems from a falling

share price and Mr Lagardère selling

down his stake from 9.6 per cent to

7.3 per cent.

Of LC&M’s shares in the public group,

99.9 per cent are pledged as collateral to

its lenders, according to Lagardère’s

2018 annual report.

If banks called in their loans, Mr

Lagardère’s stake in the company

founded by his father could be wiped

out — unless he has liquid assets not

shown in the accounts.

Mr Lagardère’s financial situation is of

importance to minority shareholders in

Lagardère because of the way in which

the media group is structured as a part-

nership.

The structure means Mr Lagardère

cannot be removed by shareholders, but

he also has unlimited responsibility for

the company’s liabilities.

The large debts mean that Mr Lagar-

dère may have different incentives to

other shareholders. From 2009 to 2017,

it appears he has received about €360m

in dividends and pay from the group.

In April, LC&M sold €2m of shares of

Lagardère, according to regulatory fil-

ings. This came even though its share

price was near a two-year low and the

company was in the middle of a restruc-

turing. Lagardère explained the sale was

the result of a “long-term agreement”

between a bank and LC&M, which sug-

gests that LC&M was selling under pres-

sure from its lenders.

Lagardère and a spokesman for Mr

Lagardère did not provide a comment

for publication.

Media

Lagardère’s personal debts revealed

Mogul’s shares in public

company pledged as

collateral to his lenders

M U R A D A H M E D

SPORTS CORRESPONDENT

When Croatia beat France in the final of

last year’s Davis Cup, the flagship team

event in men’s tennis, the victory

marked the end of an era.

From this year, the 119-year-old tour-

nament comes under the financial con-

trol of a Spanish investment group run

by footballerGerard Piqué, whose radi-

cal plans have triggered a battle in the

sport as intense as any match on court.

The International Tennis Federation,

the body that runs the Davis Cup, sold

the competition’s commercial rights in a

deal worth $3bn over 25 years.

The buyer wasKosmos, a sports

investment vehicle founded by Mr

Piqué, the FC Barcelona defender, and

Hiroshi Mikitani, billionaire chairman

and chief executive of Japanese internet

retailerRakuten, which has secured

investors such as venture capital groups

China Media Capital and Sequoia.

“I just want to bring one of the most

important tennis competitions to the

top again,” Mr Piqué told the Financial

Times.

Kosmos is making big changes to the

competition. Instead of ties being

played home and away between nations

over the course of the year, the final

stages will be concentrated into a week-

long event in Madrid this November,

with 18 nations competing.

Javier Alonso, chief executive of

Kosmos Tennis, said the revamped

format meant “[spectators] will con-

tinue to follow as you do for the

World Cup of football... Without

that change I don’t think Davis Cup

would have survived.”

Kosmos says that many top players,

such as Spain’s Rafael Nadal, are enthu-

siastic. Others have been sharply criti-

cal. Switzerland’s Roger Federer has

said “the Davis Cup should not become

the Piqué Cup”.

The company’s efforts also face oppo-

sition from leading tennis bodies, such

as the ATP, which runs the men’s ten-

nis world tour and is launching a rival

team event that takes place just after the

Davis Cup. Under the terms of its deal,

Kosmos will pay $40m a year to the ITF,

while covering other operational costs,

such as the $18m prize pot for players.

These financial commitments are worth

$3bn over 25 years, said Mr Alonso.

The group said early expenditure

means the competition will be lossmak-

ing for up to three years. But it is quickly

moving to recoup its outlay with a string

of commercial deals in recent months.

Madrid’s authorities are paying €11m

a year to host the Davis Cup finals for the

next two years. Rakuten became the

Davis Cup’s title sponsor in June, with

Mr Alonso saying the Japanese company

will pay broadly the same amount as its

previous main corporate partner, the

French bank BNP Paribas.

So far, Kosmos has secured 10

sponsors for the competition, up from

just four last year. According to its

annual report, the ITF made roughly

$20m in 2018 from sponsorship deals

related to its events, of which the Davis

Cup is the biggest.

Kosmos must retain a seven-year

global television deal with beIN Sports

signed in 2015, but has secured an agree-

ment that it can sell screening rights for

the competition in countries where the

Qatari broadcaster has not agreed pack-

ages for the Davis Cup.

To that end, Kosmos announced a TV

deal with Movistar in Spain last month.

It is in talks in other territories, such as

with Amazon for UK screening rights,

and the Sinclair Broadcast-owned

Tennis Channel in the US.

“Davis Cup is the only tennis event

where fans support countries instead of

players,” said Mr Piqué. “From a finan-

cial perspective, this new format is more

attractive for sponsors as the event will

be broadcast worldwide with 18 coun-

tries competing.”

Success depends on the best players

taking part. Mr Alonso suggested “

per cent” of top men’s players have

signed up. But among the holdouts are

the biggest names in tennis.

The world’s top ranked player, Novak

Djokovic, has not yet agreed to play. “I

just feel like the date of the Davis Cup is

really bad, especially for the top play-

ers,” the Serbian said last year, adding he

intends to prioritise the ATP’s World

Team Cup, a 24-nation tournament

taking place in Australia in January.

While Federer has signalled his

disapproval, he is not eligible to play this

year as Switzerland have not qualified

for the finals.

Chris Kermode, the outgoing chief

executive of the ATP, has said that

scheduling the expanded Davis Cup so

close to his organisation’s new team

event was “insane”, effectively pitting

the two tournaments against each other

in a battle for fans, players, broadcasters

and commercial partners.

Kosmos, ITF, ATP and organisers of

other tennis competitions, such as the

four Grand Slam tournaments, have

been in talks for months to resolve prob-

lems around the congested calendar.

So far, there is no resolution in sight.

Yet Mr Alonso insisted a transformation

was necessary to gain a greater global

following for the competition.

“Davis Cup was shrinking... because

it was disconnected in the year,” he

said. “So, last year: France against

Croatia. In Spain, nobody knows who

was at the final. Nobody cares, because

we lost in September and you discon-

nect.”

Travel & leisure.Match reforms

Davis Cup battle lines are drawn

Revamp of tournament by

top footballer in $3bn deal

courts continued unease

Croatia’s Mate

Pavic takes on

Pierre-Hugues

Herbert and

Nicolas Mahut

in the Davis

Cup 2018 final

in Lille, France.

This year

several big-

name players

have yet to

agree to play

Pascal Rossignol/Reuters

Switzerland’s Roger

Federer has said ‘the

Davis Cup should not

become the Piqué Cup’

Amber has

taken legal

action

to make

LC&M

publish its

financial

accounts

AUGUST 27 2019 Section:Companies Time: 26/8/2019 - 18: 54 User: john.hayes Page Name: CONEWS1, Part,Page,Edition: USA, 12, 1

RELEASED BY "What's News"

vk.com/wsnws

TELEGRAM: t.me/whatsnws