I was approached by a Wired journalist overnight about Peter Thiel’s neobank Erebor. He’d got a tip that the bank’s financial position as revealed by the latest Call Report was concerning and asked if anything stood out. The assertion was that the bank shows no signs of a viable business model based on the numbers.
I was obviously aware of Erebor, but I’d not thought about it too deeply. Now that I’ve looked at the numbers and structure more closely, a few obvious things stand out. As a rule, I’m really happy helping other journalists out. I don’t mean to front-run this guy on his story but I also want to make sure my subscribers get the skinny on my insights before anyone else.
So this is the gist of what I shared with him. I’ve used AI to streamline my thoughts because it’s still school holidays and time is precious.
On the face of it, there are definitely some weird numbers.
Erebor has about $4.7bn of assets and $4bn of deposits, but only around $77m of net loans. Its efficiency ratio is around 202 per cent, it lost roughly $16m in H1, and there are legitimate questions about both the nature of the deposit base and the fact that most of its book equity consists of perpetual preferred rather than common equity. So if you’re analysing it as a conventional bank, I can see why you might conclude there’s no obvious business model here.
But I think that misses the point.
