40 1GM Tuesday July 28 2020 | the times
Business
Shares in HSBC fell yesterday after
the bank was forced to deny it had
framed Huawei, the telecoms equip-
ment maker, in the Chinese firm’s
dispute with the US authorities.
The bank said in a message posted
on Wechat on Saturday: “HSBC has
no malice against Huawei. In re-
sponse to information requests from
the US Department of Justice, HSBC
only provided factual information.”
The bank was responding to a
report in China’s official People’s
Daily newspaper that accused HSBC
of being an accomplice of the US and
lying about Huawei, resulting in the
arrest of Meng Wanzhou, its chief
financial officer.
Huawei is accused by the US
authorities of violating sanctions
against Iran and of misleading HSBC
over Huawei’s relationship with a
company operating there. It denies
the accusation.
HSBC shares fell more than 3 per
cent to 353p yesterday after the latest
blow to the bank in the escalating
dispute between the US and China
over Huawei, the future of Hong
Kong and trade tensions. HSBC is the
UK’s largest bank by market value. It
makes the majority of its profits from
Hong Kong and also has significantoperations in the US, putting it in the
middle of the dispute between China
and the US.
The bank will face scrutiny when it
reports half-year results on Monday
about its relationship with the
authorities in China, where expan-
sion forms a big part of its strategy for
future growth.
Mark Tucker, the bank’s chairman,Samir Desai, Funding Circle founder,
Chance to square the Circle and
Samir Desai tells James Hurley he is frustrated and
bemused by Funding Circle’s poorly performing stock
Funding Circle has made Samir
Desai a very wealthy man, but he says
there are less trying ways of making a
living. “We’re not doing it for the
money, otherwise we would have
done something easier,” he says.
The founder and chief executive of
the online lender sold £20 million
worth of shares when it floated in
2018, and it proved a wise move as the
company suffered one of the worst
first weeks of trading in the history of
the London stock market.
At the time, Mr Desai dismissed
that as a “weird blip” but it has been
downhill from there, with the busi-
ness, which connects investors with
small companies seeking credit,
having steadily lost more than 80 per
cent of its market value.
The best part of two years on, Mr
Desai, 37, who has retained the
majority of his stake, looks back on
the calamitous float with a mixture of
frustration and bemusement. “I’m
not going to pretend it’s been a
smooth ride. It’s not quite what I
expected,” he says. “Everyone likes to
talk to us about the share price all the
time, but it’s not some truth about our
business, the market can be wrong.
My hope is, it’s very wrong.”
Funding Circle traces its origins to
a project a young Mr Desai worked
on while at Boston Consulting Group
that highlighted inefficien-
cies in the market for
lending to small business-
es, including the time and
frustration involved in
securing a bank loan.
A trio of Mr Desai,
James Meekings and An-
drew Mullinger, friends
from Oxford University,
launched the business
in 2010 while in their
twenties, opening an
office above a waffle
shop and investing
£60,000 of combined
savings. Initially it
provided an online
peer-to-peer platformthat directly linked retail investors
with entrepreneurs seeking credit.
Funding Circle has arranged more
than £9 billion worth of loans to more
than 80,000 businesses. All its
lending capital currently comes from
institutions such as pension funds.
The taxpayer has invested about
£300 million via the state-owned
British Business Bank, earning the
public purse £13 million of net interest
and supporting tens of thousands of
companies.
Why has the market taken such a
dim view? A punchy float price, lack
of profitability and the fact that
the company’s credit policies
had yet to be tested by a down-
turn have all been factors.
The UK division, where
most of the revenues come
from, is now profitable and
costs have been cut in its
other big markets, particu-
larly the United States, as
the group works towards
break-even, progress that
has yet to be reflected in the
price of the stock.
“The business is nearly
twice as big as it was when we
floated, we’ve done twice as much
lending. We’re helping a lot more
small businesses, we’re delivering a
lot,” Mr Desai says.
Funding Circle is not alone in its
travails; the market has taken a
similarly dim view of the US online
lenders On Deck and Lending Club.
Both have lost more than 90 per cent
of their value since going public.
“We’re not doing something that’s
so crazy — we have banks, insurance
companies, retail investors, pension
funds, governments, everyone is buy-
ing these loans,” he says.
While he insists that he doesn’t re-
gret floating, Mr Desai admits delay-
ing going public to allow the com-
pany to reach profitability might have
been wise, although “given the com-
pany’s size and scale it was inevitable
we would go public at some point”.
He takes solace in the maxim of the
economist Benjamin Graham that“in the short run, the market is a
voting machine but in the long run, it
is a weighing machine”.
What better way to weigh the value
of a business than during a global
crisis? Some expected the fallout of
Covid-19 to spell disaster for Funding
Circle, given the nature of its custom-
ers. It still could, of course, but the
business is having a pretty good war
so far, which Mr Desai says presents
an opportunity to prove Funding Cir-
cle can be counter-cyclical. “I think
it’s going to be a chance to remove the
last doubt left against the business.”
Since it was approved to offer
credit under the government’s coro-
navirus business interruption loan
scheme, which is underwritten by a
state guarantee, it has been responsi-
ble for about one sixth of the scheme.
That has meant companies that
struggled to secure credit from a high
street bank have come to Funding
Circle for the first time. Many have
been impressed that they’ve secured
a loan in minutes that may have taken
many weeks for a traditional lender
to approve. The company thinks the
crisis will accelerate the uptake of
such online lending if Funding Circle
can demonstrate its efficiency.
Nor has the crisis yet proved as
catastrophic for the loan book as
some expected. After an initial surge,
the company says the proportion of
borrowers seeking payment holidays
has dropped back to pre-crisis levels.
Mr Desai wants investors to
understand the company is heading
in the right direction even if that is
not yet reflected in the share price.
“We have believers and we have
detractors and, at the moment,
probably more detractors,” he says.
“Our job is to convince them through
hard work and delivery.”
Besides, he says, there are areas
where the company has delivered on
its promise.“We were three guys
working above a waffle shop. We’re
really proud of all the impact we’ve
been able to have, especially during
this period, but also in terms of job
creation and stimulating GDP.”f
t
Funding Circle
Source: Refinitiv500p
400
300
200
100
0
Share price
2019 2020
HSBC shares slip amid Huawei row
Katherine Griffiths Banking Editor and Noel Quinn, the chief executive,
will also be under pressure to demon-
strate progress in targets unveiled in
February to cut $4.5 billion of costs at
underperforming divisions in the US
and Europe. The bank has been
pressing ahead with its restructuring
despite the Covid-19 crisis.
Along with other banks, HSBC is
set to announce a large bad debt
charge. It may pledge to make its
cost-cutting deeper in an attempt to
address greater challenges in the
wake of the pandemic, including the
likelihood of very low interest rates
for a long period of time.
Analysts at JP Morgan said that
earnings for both HSBC and Stan-
dard Chartered were likely to come
under “material pressure” in their key
Hong Kong market.
One of the reasons was escalating
political tensions, the analysts said in
a research note. “China’s recent pas-
sage of the national security law on
Hong Kong and the US’s implemen-
tation of the Hong Kong Autonomy
Act — removing Hong Kong’s prefer-
ential trade treatment and giving the
administration power to sanction
certain individuals/banks — has
added to the geopolitical tensions
since the US-China trade wars first
escalated in 2018,” the note said.
Tempus, page 42Hong Kong turmoil has put HSBC
under pressure from both sides