Starling Bank's Covid Hangover: Fraud, Fines, and a Few Less Feathers

Feather Ruffled: Profits Take a Dive

Alright let's get one thing straight. I Bobby Axelrod don't usually concern myself with small time British banks. But when numbers take a hit even across the pond it's worth a glance. Starling Bank apparently a digital darling in the UK just posted a 26% drop in profits. That's like Axe Capital missing its quarterly target by well 26%. Unacceptable. Revenue's up a measly 5% a serious slowdown from last year and that's before you even factor in the real damage. As I always say 'What's the point of having fuck you money if you can't say fuck you?' These guys are far from that.

Fraudulent Fowl Play: Covid Loan Chaos

Here's where it gets interesting. Turns out Starling got tangled up in the Covid loan frenzy just like everyone else trying to grab a piece of the pie. They lent out cash under the Bounce Back Loan Scheme guaranteed by the government. Problem is some of those loans weren't exactly on the up and up. Weak fraud checks shady borrowers... sounds like a recipe for disaster. They've 'volunteered' to remove the government guarantee on some of these loans taking a £28.2 million hit. Voluntarily giving back money? Now that's something you don't see everyday.

Fine Feathers Don't Make Fine Birds

And if the loan mess wasn't enough they also got slapped with a £29 million fine by the Financial Conduct Authority. Seems their financial crime prevention systems weren't exactly Fort Knox. Reminds me of when Wags forgot to encrypt those emails. Cost us a fortune. Bottom line: you can't cut corners when it comes to compliance. As I said once 'Money doesn't solve everything... it just solves money problems.' This bank is finding out the hard way that bad controls create a whole new set of problems.

Competition: A Murder of Crows

Starling isn't the only bird in the sky the article mentions. They're up against old school banks and flashy fintech rivals like Monzo and Revolut. The digital banking space is a bloodbath and everyone's fighting for a piece of the action. Goldman Sachs Fidelity Qatar Investment Authority they’re backing this show but it's still a dogfight. In this environment these stumbles feel even bigger.

Legacy Issues Or Just Plain Mess?

The CFO calls it a 'legacy issue,' which is just a fancy way of saying 'we screwed up but don't want to admit it.' They're trying to play it cool saying they're cooperating with the British Business Bank and being transparent. But let's be real damage is done. When it comes to reputation those things are earned by a thousand acts and lost by one.

Axe's Take: Time to Circle?

So what's the play here? Do I see an opportunity? Maybe. Starling's got some cleaning up to do but they're still in the game. I always say 'You gotta be a stone to get through this world.' And if these guys can find a way to adapt and move forward they might just have a future. But for now I'll be watching from the sidelines waiting for the perfect moment to pounce... or perhaps short the stock.