Why Atom Bank’s valuation is set to half

By Oliver Smith on Friday 12 March 2021

Digital Banking

Blame Neil Woodford.

Why Atom Bank’s valuation is set to half
Image source: Mark Mullen/Atom Bank.

One of the UK’s original digital banks, Atom Bank, is reportedly weeks away from its latest funding round—albeit at a significant discount to previous funding.

According to Sky News, Atom Bank’s already-announced but yet-to-close £40m funding round is being completed at a 60p-a-share valuation, under half what it raised funding at in 2020.

That’s in contrast to recent digital bank funding rounds we’ve seen, with Starling Bank reaching a £1.1bn valuation earlier this month and Revolut last year hitting a $5.5bn valuation.

Monzo admittedly closed a £1.25bn down-round last year after it mistimed its funding round in the middle of the Covid pandemic.

So why is Atom Bank now suffering a similar fate as most of its peers see their valuations soar?

The reason comes down to the bank’s shareholders. Neil Woodford’s Woodford Patient Capital Trust was among the bank’s largest shareholders, before the Woodford operations' rapid demise in 2019.

Today the Woodford Patient Capital Trust has been rebranded the Schroders UK Public Private Trust, and as part of the transition Schroders is attempting to diversify its assets away from the unlisted private equities for which Woodford was so fond.

According to Sky News, this has meant that Schroders is not participating in this round, leaving other backers to pick up the slack.

Schroder’s 15 per cent stake will be diluted, as the banks other cornerstone shareholder Toscafund will increase its stake from 29 per cent to 33 per cent.

BBVA will reportedly maintain its 40 per cent holding in Atom Bank.

To date, Atom has raised around £450m and has even flirted with the idea of a BBVA takeover before the Spanish bank pulled out of the deal as it pivoted away from fintech. 

Aside from potentially an impending down-round, Atom has had a strong 12 months.

In the second half of the current financial year, Atom Bank has added £362m of mortgages to its portfolio and has loaned a total of £2.8bn to its mortgage customers since 2016.

The digital challenger also opened its Instant Saver account to the public in September last year and has already seen deposits reach £600m, adding to the £1.7bn held in its fixed savings rate accounts.

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