Zenbanx Holdings, ZBH and LC, Lending Club.

February 15, 2017 Hamilton

Zenbanx Holdings, a Deleware incorporated company was apparently sold earlier this month to SoFi, Social Finance Inc. This company’s shares are not listed at this time but they are planning to do so soon under the Jumpstart Our Business Startups Act which act essentially allows startups to ignore many regulations with regard to accredited investors and so on. Detractors of this Act have argued that it legalizes all the bad habits of the old-fashioned boiler room dealing operations. In the meantime they have been able to register debt securities with the Securities and Exchange Commission and have raised considerable amounts of money. With a relatively small portion of this money, roughly $100 mln. US, they are going to buy, using shares, ZBH.

ZBH owns 40% of ZBC. The majority interest, 60%, is held by Duca. ZBC was granted permission to exist on the 16th of July, 2014 by an order issued by DICO, the Deposit Insurance Corp. of Ontario which has part of the regulatory supervisory powers over credit unions. The terms of the order are;

Reading the above we have no idea if the present arrangement will be allowed to continue, assuming that is what the parties want, or not. By our estimates, see previous ZBC blogs, ZBC has lost roughly $20 mln. over its short life not including some direct expenses that were born by its majority parent. This is on the assumption that operations were drastically shrunk as of about April last year. Otherwise the damage could be considerable higher. Of course the ZBH shares held as an investment by the parent may have appreciated as a consequence of this deal and assuming the shares received can be sold in a timely fashion. Tax considerations will play a significant role when an exit strategy is contemplated and would normally favour the continuation of the business if possible.

As Sofi has not done an IPO yet, we will look at LC, Lending Club Corp. which did exactly that slightly more than 2 years ago. Here is the chart;

Founded by students at Stanford University the idea behind this company is based on what is called peer-to-peer funding. Each loan stands on its own and is broken into little pieces that can be bought separately. In its ideal and theoretical form , disintermediation can be taken to the point where LC ceases to be a principal and instead becomes an agent only. That is where it is at its most disruptive as it essentially democratizes the idea of a bank to the extreme where it is no longer required, sidestepping most regulatory bank rules. This is also where point 1 above becomes very muddy as it is not clear to whom the “ services” are provided and what they actually are.

Sofi is looking to follow in LC’s footsteps, the good ones that is. Already they are very self assured , brash, cutting edge and so on and even if they manage to avoid all the pitfalls that LC has gone through and regardless of whether they succeed or fail, it is hard to see how they would be a suitable partner in the long run. No doubt we will know more come April.

Zenbanx Canada, no more??

April 3, 2016April 4, 2016 Hamilton

We have had some misgivings about the use of a “technology” company in a credit union, see our blog of Sept. 1, 2015, one that was missed by the defamation suit that was launched at about that time against me. The suit, by the way, is perhaps still operational despite the fact that the instigators have not lived up to their commitments.

In that blog I estimated that Zenbanx would loose another $5 mln. by year-end 2015. I was again too optimistic as the actual loss turned out to be $6.6 mln. for the last 6 months of 2015. See below;

The total since inception mid 2014 is now $16.617 mln. but that does not include certain managerial and professional expenses that were born by the parent and conservatively are in the order of another 1.5 mln. or so. What little revenue there was comes from, of all things, foreign exchange translations and rentals. Payroll, occupancy and governance are now well over 3 mln. a year. Little wonder then that the credit union is looking to “renegotiate” the deal with ZBH. Unfortunately that will not be as easy as it was in the past as the two Senechals have been reduced to one, no doubt after a “golden handshake”.

A particular paragraph, under “related party transactions” on page 36 caught our attention;

First of all, we the members, did not even know that there were board directors at ZBC. It was mentioned in passing at the last AUM but you would have had to listen very carefully. The board members, at least those that were named are Ralph Kikkert, Marijke Kanters, Jennifer Visser and Angela Pollard. The person the statement refers to is of course now ex-Vice-chair Angela Pollard or, more precisely, Pollard and Associates which company was petitioned at the court by the credit union in stead of Collins Barrow, well before she herself stepped down. Not only did that result into “billings” of a few hundred thousand dollars but now there is an additional $96,000 to share between the four of them. The concept of appointed directors is alive and well despite the regulators earlier strong objections and clear prohibitions against professional people holding office within a certain time period in the Credit Union Act.

Before this whole affair is over and done with we would estimate that the financial damage of this predictable unwise experiment will be around $25 mln. Even at 60% that is twice the self proclaimed catastrophic event that was mentioned in the offering memo for the B share issue and this one is, for the most part, not tax-deductible. No statement of material change was ever issued even though these developments were blatantly obvious starting from mid-year 2015. More on that some other time.

Zenbanx

December 3, 2015December 4, 2015 Hamilton

When you enter any one of York’s regional forests there is a sign at the gate that reads………..

DOGS MUST BE IN CONTROL AT ALL TIMES.

Just like the dog in the picture, our Rhodesians were also always in control but is this really what the bureaucrats meant, or did they mean that you, the owner, must always be in control of your dog? Today few people are taught proper grammar and most do not know the difference between a noun and a verb and even fewer have heard of a transitive verb.

Here is another example;

On the left is the original text from a very lengthy FQA (Frequent questions and answers) e-mail sent to many potential clients. In this example the confusion is between nouns and adjectives. I contacted the help desk ( in California) to bring to their attention that this might be a very poor choice of words as they were essentially barring a good number of existing clients from participating, particularly Dutch landed immigrants. Unlike most of the Common Wealth members, Holland does not allow dual nationalities if acquired voluntarily and as a result many never bothered to become Canadian.

It took a little effort and a few tries but in the end someone high up agreed, and the text was changed. It is not the Dutch only that were barred. It takes at least 4 years as a landed immigrant before you can apply for citizenship. A lot of people, millennials in particular, would not have been able to use Zenbanx’s services.

Zenbanx , a very good deal , update

October 24, 2015October 24, 2015 Hamilton

Again one of these pop-up advertisements popped up on my screen the other day. As I have always admired the gentleman behind the “save your money” Ing Bank stuff, I took a little time to read through this.

In financial services as almost everywhere else it is all about branding. I you are thinking of cowboys running after cows with hot irons to plant a big Z on their derrieres, you have caught the essence of branding spot on. It is the marketing practice of creating a name, symbol or design that identifies and differentiates a product from other products. The “target” group in this case are the citizens of the World. Not sure, but I think I might qualify having lived, and in most cases, worked, in Holland, Indonesia, Turkey, the United Kingdom, the United States and Canada. Most of the rest I travelled to. But I do not use a mobile device.

Marketing is a tricky business. One of the Saatchi brothers was my neighbour in St. John’s Wood in London. They were extremely successful but one or two missteps brought them to their knees. You have to capture the mood and get it perfectly right.

As a kid in the early 60-ties we used to drive from Istanbul to Holland, at times through countries that were then behind the iron curtain. On one of these occasions we drove through Stuttgart in order to pick-up a spanking new Mercedes. You know these cars from the star that is on the hood, you get so accustomed to it that you even wonder if the car can drive without it. No marketing type would dream of taking it off.

As we frequently drove the hairpins of the Alps, my father bought an air horn to compete with the many trucks. We were going to install it ourselves while staying at Schloss Itter. An air horn has a relatively heavy electric motor and consequently uses two circuits, one to switch it on and another to carry the high Amp. load. The relay is where the two connect. Zenbanx, being the brand part, is the equivalent of the switch circuit. The heavy duty stuff is farmed out to a partner that has the bank credentials.

So how does this work? You open an account (no cost), put in $150 + and go X-mas shopping using your debit card (no point of sale costs) and buy 3 separate items of $50 +. Any combination will do. In January you will receive a credit for $50. During the ride you get 1.5% interest. That is a certain return of 30+% between Thanksgiving (Can. Oct 12.) and the New Year. This is good only for the first 5000 new clients. Should Zenbanx succeed, it will cost them, roughly, 5000 X $50 = $250,000. Where does it come from? I guess I don’t get the “zin” of it but nevertheless wish them all the best.

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