Specialist
Former executive at Promontory Interfinancial Network LLC (IntraFi Network LLC)
Agenda
- Operating environment for IntraFi, focusing on impact of a normalised higher-interest rate environment
- Recent banking deposit flows and potential impact of FDIC (Federal Deposit Insurance Corp) insurance limit changes on IntraFi’s business model
- Implications of R&T (Reich & Tang)-TBS (Total Bank Solutions) merger, discussing IntraFi’s positioning vs the newly combined entity and StoneCastle
- Outlook for H2 2023 and beyond, focusing on a potential downside scenario
Questions
1.
What are your thoughts on the operating environment for IntraFi, pulling out a couple of key trends or drivers?
2.
Obviously, the recent banking sector stress with SVB and other players has impacted deposit flows. What the FDIC [Federal Deposit Insurance Corp] is going to do with deposit insurance limits is also top of mind. What are your thoughts on the impact of those dynamics to date? How do you think about the potential implications for the business models of players such as IntraFi, TBS [Total Bank Solutions] and StoneCastle?
3.
One of the assumptions we’ve seen lately is that increased deposit insurance will be negative for smaller regional banks and probably more of a benefit for larger banks. What are your thoughts on this, considering the consolidation and reduction in the number of banking institutions we’ve seen? How do you think about that as a headwind for IntraFi?
4.
If we went to 3,000 US banks from 4,500-ish today, what would that mean quantitatively for IntraFi?
5.
What do you view as the possible range of outcomes for bank regulation? What’s realistic? How would you handicap the probability of various changes?
6.
To what extent is a rising deposit limit a manageable risk for IntraFi and those with similar business models? You said overall network capacity could be much greater, so the service may become more relevant for more banks and depositors, but demand from some smaller depositors could reduce.
7.
It seems that most of the crisis is behind us. What do you view as the hurdles to raising the FDIC limit? What would need to happen around bank failures for thinking within Congress to change?
8.
What do you think FDIC will propose in May 2023? What sources would you be looking at to get a read on any reform passing Congress?
9.
At what FDIC threshold could any increase go from a tailwind to a potential headwind for IntraFi?
10.
Which areas of IntraFi’s business wouldn’t be impacted by higher deposit insurance limits?
11.
Let’s say the FDIC limit increases to USD 1m or somewhere between USD 250,000 and there. How do you think about this as a positive for IntraFi in the sense that it allows the company to serve larger clients? How would you contextualise the upside potential there until a limit increase maybe flips to being a negative?
12.
What worst-case scenarios could play out for IntraFi? We discussed a full guarantee of bank deposits and whether that’s realistic earlier.
13.
You don’t seem to think it’s likely that reciprocal deposits will return to being designated as brokered deposits. You said this would be negative for IntraFi. What would this look like for the company?
14.
You don’t think we’ll see a full guarantee of bank deposits. Let’s say we did but that interest wouldn’t be paid on those guaranteed deposits. What would this look like for IntraFi? I think there’s a narrative that depositors would prefer to earn interest on deposits, so this wouldn’t necessarily be a terrible scenario for the firm.
15.
How do you think about IntraFi’s competitive positioning vs a now-combined R&T [Reich & Tang] and TBS [Total Bank Solutions], StoneCastle and others? Where are the relative levels of differentiation?
16.
We mentioned the June 2022 TBS-R&T deal, and we saw Webster Bank NA acquire StoneCastle’s InterLink subsidiary in January 2023. What’s the impact of the consolidation we’ve seen to date? What does this mean for IntraFi?
17.
What would R&T-TBS or StoneCastle need to do to take material share from IntraFi? You said it’d be difficult, but how difficult?
18.
Where is pricing today? If we see competition on price, what does that mean from a pricing compression or margin erosion perspective?
19.
Could the Webster acquisition from StoneCastle go against the deposit network provider being a neutral third party? Is that maybe a big deal for certain areas vs others? Is it maybe less of a concern in business areas such as one-way transactions?
20.
Why haven’t competing networks been able to gain meaningful scale? Do you expect competition to intensify given some of the comments you’ve made?
21.
What’s changed at IntraFi since the new PE sponsor came in in 2019? Where do you think the management team and sponsor may want to take the business?
22.
What do you view as a normalised growth rate for IntraFi over the next 1-3-5 years? Where do you see growth coming from? The company has mentioned continuing new customer additions and core integrations. What does that translate to from a top-line perspective?
23.
What percentage of deposits are in the networks? You mentioned that there’s still a lot of room for growth, so what does that potentially get to over time?
24.
What could drive further network adoption? Would it be concerns around asset quality or liquidity issues at banks, as you said, or would there be other drivers too?
25.
Could we see any additional M&A? I know we’ve had a few transactions recently, but is there a chance of a larger strategic coming in? Could IntraFi be a potential acquisition target or acquirer of other assets?
26.
You mentioned the risk of pricing pressure leading to margin compression, but could anything else cause material profitability declines or impair IntraFi’s profitability?
27.
Is there anything we haven’t discussed that we should pay attention to? Is anything commonly misunderstood by the investment community? Do you have any contrarian views?
