00:06:15 · Zubin Vandrevala, Aman Narain
[00:06:15] S1: So so SysTech from 2001, oral examinations on unseen problems at a chalkboard, sixty to seventy hours a week, up to a third of every intake goes within two years. You derive everything from first principles, rote learning as banned, and a second masters at the new economics school at the same time. [00:06:37] S0: And, you know, Zubin, it's still from what I... From friends of ours who are there, it's still his hiring rule. He... Then he told Rubenstein, he looks for three things. Raw brainpower first, then character, and then craft. [00:06:51] S1: Which which is the chalkboard exam with the salary attached. Right? [00:06:55] S0: Yeah. So so London then... And for once, the dates come from him. Lehman came to the university recruiting, an internship in the summer of two thousand and six, another in spring two thousand and seven, and then a full time job in equity derivatives when he graduated. [00:07:13] S1: Yeah. 25 Bank Street, Canary Wharf. Let's let's remember this address because we'll come back to this. Right? [00:07:20] S0: Well, the student of September 2008, the firm ceases to exist on a Monday morning. He has said the trading book could be down hundreds of millions of dollars in a day. His verdict, extremely risky.
00:07:20 · Aman Narain, Zubin Vandrevala
[00:07:20] S0: Well, the student of September 2008, the firm ceases to exist on a Monday morning. He has said the trading book could be down hundreds of millions of dollars in a day. His verdict, extremely risky. [00:07:35] S1: Hundreds of millions in a day. That's what? More than Monzo Horns in the whole last year gone before lunch. On one desk. Right. And the Monday itself, right, and as we were prepping for this, mentioned to Rubenstein, he remembers exactly. The collapse was announced on, I think, the Sunday night. He came in anyway. One of those 200 traders on the floor, every system locked down, nothing to trade. So what do these guys do? 200 of them all play the same computer game. Shooting down helicopters. [00:08:06] S0: Yeah. I'm not gonna say anything. Then Credit Suisse, one Cabot Square, same estate, until 2013. A different problem, he says, not the risk, the infighting. He resigned the moment his British passport came through, and Credit Suisse, as he points out, is also gone. [00:08:26] S1: Well, two employers, two extinctions. One lost a fortune because the markets closed, and the other turned on itself, I guess. [00:08:34] S0: And one conclusion, and here it is in his own words. What I really learned from this experience is that you shouldn't take a risk in complex things. Cut the psychology. His sentence beats my hypothesis.
00:08:34 · Aman Narain, Zubin Vandrevala
[00:08:34] S0: And one conclusion, and here it is in his own words. What I really learned from this experience is that you shouldn't take a risk in complex things. Cut the psychology. His sentence beats my hypothesis. [00:08:48] S1: Accept it, and it's a design rule, not a feeling. Right? So let's price what he built with it. His number one loan to deposit, 6%, which he volunteers himself. Right? A typical bank runs near a 100, and he says he's never gone past 10 to 20. [00:09:04] S0: The audited version is a bit more stark, Zubin. December 2025, £1,850,000,000 of loans against 50,200,000,000 of customer money. 3.7%. 50,000,000,000 is more than Monzo and Starling hold together, and that's against a loan book that is smaller than Monzo. [00:09:28] S1: You know, that's not a bank that's cautious about lending. Right? Like, that's a bank that has decided lending is somebody else's department. [00:09:36] S0: And and then the claim that deserves a raised eyebrow. Return on equity of 40 to 50% once excess capital is deducted. Double his best rivals, he he says. [00:09:49] S1: Contested. And and here's why. Right? Like, net profit over equity audited, you know, I think it's, what, £1,300,000,000 over 4,900,000,000, but what? 26.7%. Excellent, but not 45. And on the same arithmetic, Nubank is about 28 and a half. Right? He's he's double his rival only after he redefines his denomination.
00:09:49 · Zubin Vandrevala, Aman Narain
[00:09:49] S1: Contested. And and here's why. Right? Like, net profit over equity audited, you know, I think it's, what, £1,300,000,000 over 4,900,000,000, but what? 26.7%. Excellent, but not 45. And on the same arithmetic, Nubank is about 28 and a half. Right? He's he's double his rival only after he redefines his denomination. [00:10:16] S0: Yeah. As we all do. And there's a real mechanism under this redefinition. So let me defend it. A pound at a central bank carries a risk weight of zero. A personal loan, 75 to 100. Over 60% of Revolut's assets are cash and reserves, so only about £22 in every 100 count against capital. JPMorgan, for example, 43. New Bank, 55, which is why his core capital ratio is 31% and JPMorgan's is 15. [00:10:52] S1: Aman, this case, except the capital, isn't all voluntary. Right? Like in June, it emerged that the ECB had raised the Lithuanian banks' pillar to requirements to, I think, four and a half percent, and the highest add on of any bank directly supervises. So some of the capital he calls excessive is capital a supervisor told him to hold. [00:11:13] S0: Yeah. And and so it isn't return on equity once excess capital is deducted. It's once the ECB's opinion of us is deducted. [00:11:22] S1: Exactly. Exactly. [00:11:24] S0: And and and twenty six point seven is still a very good bank. So [00:11:29] S1: Fair point. [00:11:30] S0: Put him next to the bank we've been arguing about since the episode 15. If you remember the flywheel that we established, the one that said that every neo bank that makes it is running.
00:11:30 · Aman Narain, Zubin Vandrevala
[00:11:30] S0: Put him next to the bank we've been arguing about since the episode 15. If you remember the flywheel that we established, the one that said that every neo bank that makes it is running. [00:11:43] S1: So let's pay that back, right? Like the wedge, the monetization ladder, and the efficiency engine. Right? So win the customers for almost nothing with one product that fixes a real pain, climb them up that ladder of a sort of higher margin product, and then run it all on a stack so effectively that every rung stays [00:12:01] S0: And both of them run it. Nubank's wedge was the purple no fee card, as you eloquently put it. Revolut's was the multicurrency card at the interbank rate. Both have the engine. Revolut's cost to income ratio is under 28%. [00:12:19] S1: But, Aman, the difference in the ladder... And I I don't think we said this clearly enough in episode 15. Right? The rally goes to different places, and the scars decide where. So Nubank climbed into credit. 58% of his deposits lend out. The net interest margin, 9.8%. 80% of its revenue is interest. [00:12:38] S0: And Revolut climbs into everything except credit, subscriptions, FX trading, wealth, crypto. Net interest margins, 2.1. 74% of revenue is fees. [00:12:51] S1: Right. And then a new back pays for its ladder. Right? Cost of risk, 520 basis points against Revolut's one fifty eight. Late stage bad bad loans, 6.1% against against Revolut's 2.4.
00:12:51 · Zubin Vandrevala, Aman Narain
[00:12:51] S1: Right. And then a new back pays for its ladder. Right? Cost of risk, 520 basis points against Revolut's one fifty eight. Late stage bad bad loans, 6.1% against against Revolut's 2.4. [00:13:04] S0: Yeah. Same flywheel, opposite ladders. Velez at Nubank turns deposits into credit and prices the default. Storonsky turns deposits into a float and prices transactions. The Lehman floor decided which ladder he built. [00:13:21] S1: Right. And let's talk about a third ladder people forget about. SoFi started by refinancing student loans, lends heavily, bought a bank charter in 'twenty two, and is also bought Galileo and and Technises, the plumbing, and sells that plumbing to other banks and fintechs. SoFi's Top Run isn't a product for customers. It's essentially the stack itself sold to its competitors. [00:13:46] S0: Which is heresy in a bank. Every bank I've known guards its core systems like crown jewels. [00:13:53] S1: Right. And SoFi rents the crown jewels out by the account. [00:13:56] S0: Which is the real story of the neobank class of this decade. The ones that made it aren't cheaper banks. Each has picked a different answer to a question banks stopped asking about a century ago. What is a deposit for? [00:14:10] S1: Right. And and neobank says credit, Revolut says float, SoFi says soft.