Image source: Simple

Image source: Simple

US-based BBVA Compass has unveiled a “goodwill impairment” charge of $60 million in its latest financial results, attributed to its direct banking service subsidiary, Simple.

Portland Business Journal, a publication based in Portland, Oregon, home of Simple, reports that BBVA took similar charges related to Simple in 2015 ($17 million) and in 2014 ($12.5 million).

Thus, the total write-down now stands at $89.5 million, since the BBVA’s acquisition of Simple three years ago.

BBVA paid $117 million for fintech start-up Simple in early 2014. At the time, BBVA said Simple had 100,000 customers, although various external publications and reports gave a considerably lower number of around 33,000 active customers.

Carlos Torres Vila, CEO of BBVA, told analysts at a recent conference call that Simple “is growing very well”, adding 30,000+ customers a month at a low cost of acquisition.

Hmmm… so let’s see…

In a Financial Brand “snarketing post” last year, Ron Shevlin, director of research at Cornerstone Advisors, questioned Simple’s claims.

No customer numbers were ever disclosed by Simple. The company’s CEO, Josh Reich, stated in spring 2016 that “if it were a traditional bank it would have needed 850 branches and 6,000 branch employees to support the number of customers” it had by that point.

Reich’s ratio of 6,000 branch employees to 850 branches is “perfectly in line with what’s really going on in the industry”, Shevlin comments.

“So, if Simple believes it needs 850 branches to support its customer base, it would not be out of line to estimate that it has 2.975 million customers. Unless, of course, the average number of accounts held per customer is significantly greater than one.”

From 33,000 to three million in two years. “Pretty impressive growth, eh?”

And it gets better.

According to Cornersone’s research, traditional banks and credit unions in the US hold about $115 million deposits per branch. So, Simple’s 850-branch comparison means that it has $98 billion (!) in deposits. Simple’s parent, BBVA, has 700 branches and $65 billion in deposits.

In terms of assets per branch, according to traditional bank/credit union’s average, Simple should have around $137 million in each of its 850 branches, Shevlin says. That makes Simple a $117 billion (!) institution. “Or the 21st largest bank in the US.”

Now onto the assets per employee. “Traditional banks average about $5 million per FTE,” Shevlin says. “If Simple really has $68 billion in assets, each of its 250 employees would be supporting nearly $275 million in assets. How does Simple do it?!@*#!@??!!”

Good question!

@banking
techno