After a prolonged drought in London’s equity capital markets, Shawbrook’s flotation offers a rare shaft of sunlight. The paucity of London’s recent IPO pipeline is as well-known as the debate on how to fix it.
A successful offering from Shawbrook, a highly profitable bank with digital credentials, provides a much-needed vote of confidence in the London markets and a hint of the direction of travel for those working in and around fintech and financial services.
This matters not just because of the deal itself, but because of what Shawbrook stands for. Digital banking, fintech and financial services more broadly are areas where the UK enjoys a genuine comparative advantage, combining deep pools of talent, supportive regulation, and proximity to major financial institutions.
Other fintechs and challenger banks will be watching closely: success could encourage them to follow, reminding investors that London can still host dynamic, high-growth businesses and not just mature dividend-paying businesses.
I think it is wrong, however, to read Shawbrook’s decision as evidence of a sudden resurgence in London’s competitiveness versus New York or other listing venues.
The bank’s business is overwhelmingly domestic. Its customers are all UK-based, as is its regulator. A London listing was the rational choice. This deal also does little to resolve the debate over whether London’s markets undervalue tech businesses.
Shawbrook focuses on traditional, profitable lending activities as opposed to the broader fintech playbooks of certain other challenger banks. Nor is it a true growth capital story. The vast majority of the offer’s £300mn+ proceeds went to Shawbrook’s private equity backers, Pollen Street and BC Partners, with only £28mn going to the company itself.
The real test will come when tech-driven banks such as Monzo or Starling seek public listings at richer valuations. London will need to prove again it can value innovation, as the London Stock Exchange has long argued it can.
And of course, the structural backdrop has not changed overnight. The growth of deep private capital pools such as venture, growth and private equity has reduced the pressure on companies to list.
UK pension funds’ retreat from domestic equities has damaged domestic demand. Recent policy efforts, from the FCA’s listing rules reforms to the emerging Pisces framework, are a sensible evolution.
The latter, by facilitating intermittent trading in private shares, could provide a useful stepping stone to a full listing. And currently mooted political proposals on stamp duty and Isa incentives suggest that the political will to revitalise the markets is building.
But such steps are necessarily slow and fraught with political difficulty. Confidence can, by contrast, return far quicker than any structural changes can occur as evidenced by the post-Covid mini-IPO boom that occurred in 2021.
If Shawbrook performs well, the hope is it could encourage more institutional and retail investors back into the market, and more companies to view the London markets as a viable home.
Markets move in cycles, and perhaps London’s is turning. Certainly that is the sense I get from speaking to my firm’s challenger bank, fintech and financial services clients, as well as other market practitioners.
Shawbrook’s IPO will not, of course, fix the system by itself, but it has the potential to shift the mood.
If it trades well and performs after listing, it could help restore some confidence in the market’s ability to support credible, profitable businesses. A successful debut would be a modest but welcome reminder that investor appetite still exists. Success breeds confidence and confidence attracts capital.
The danger, of course, is the opposite: a poor showing would harden doubts about London’s appeal. Shawbrook is, in many ways, a sweet-spot listing for the City, namely a profitable, straightforward bank coming to market at a time of cautiously positive sentiment towards the sector. It is exactly the kind of business London should be able to support. The early indications are mercifully positive.
Guy Morgan is a corporate partner at law firm Fox Williams