Hits and misses: groupthink gaffe meant 2023 was payback time

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Lex succumbed to groupthink by cheering consolidation in the payments industry back in 2019. The error was cruelly exposed during 2023. High-priced dealmaking failed to yield compensatory sales growth, cost savings or serious disruption to incumbent banks or payment networks.

In the US, FIS sold Worldpay for less than half its purchase price of $43bn. Paris-listed Worldline, another consolidator, issued a catastrophic profits warning.

What went wrong with the “payments revolution” that we trumpeted? Knitting businesses together from disparate corners of a fragmented industry proved harder than expected. Network benefits failed to materialise.

Buying Worldpay was “a deal FIS had to do” we wrote, in a note in 2019. Hardly.

The market value of FIS peaked at almost $100bn in 2019. Surging online payments bolstered optimism towards the sector during the Covid years. When interest rates rose, higher discount rates hit valuations for companies seen as growth plays.

The tech sector later rallied on AI hopes. But payments groups stayed in the doldrums. Shares in FIS and Worldline have fallen around 70 per cent and 86 per cent respectively from their peak.

Lex did better in 2021 with our assessment of Wise, a remittances fintech. It joined the London market at a capitalisation of about £9bn but now trades closer to our initial £6bn valuation.

Lex clawed back some temporary credibility late last year by predicting pain ahead for Generation Rent in October 2022. UK private landlords typically have interest-only mortgages. That exposes them to steeper cost increases on refinancing than owner-occupiers when rates rise.

The message from specialist lenders, analysts and mortgage brokers was “nothing to see, move along now”. But by the autumn of 2023, the woes of Generation Rent had become a hot topic for the UK media. Many buy-to-let landlords were jacking up rents or selling out.

Shares in Paragon Banking and OSB, a peer with its own book of BTL, slipped during 2023. They then staged a triumphant comeback to the end of year, thanks to the peaking of interest rate expectations.