Increasing its Balance Sheet Ahead of IPO
Robinhood is reportedly looking to raise more cash ahead of the much-anticipated IPO expected to take place soon. Reuters reported last month that the online investing company is seeking a business valuation of about $30 billion.
The company is in talks with major lenders to raise additional funds and add to its revolving credit lines. The investing business already has a credit line worth $600 million from major banking businesses, such as JP Morgan, Goldman Sachs, and Morgan Stanley.
An increase of available credit lines would solidify the company's financial position ahead of the IPO. Robinhood announced in February that it raised new debt and sold $3.4 billion in equity to improve its balance sheet as it dealt with a major backlash from retail investors amid the “WallStreetBets” frenzy.
“This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform. We are humbled by our customers’ response to our offering, and remain inspired by everyday people taking control of their financial futures,” said Jason Warnick, CFO of the company, in early February.
It is still unknown whether Robinhood’s attempts to raise more funds are associated with a potential investigation the investing business may be facing from regulators, namely the Financial Industry Regulatory Authority (FINRA) and US Securities and Exchange Commission (SEC).
The investing company didn’t disclose all stock trades it facilitated to a public data feed, Reuters reports this morning. This practice goes against the rules set by these financial regulators. Robinhood offers its users the possibility to trade fractional shares. In practice, an investor can buy only a portion of an Alphabet (GOOGL) stock instead of paying over $2,000 to own a single stock.
The investing business started offering this service back in December 2019, but it only started reporting on these trades at the end of January this year. Some major banking businesses, such as Deutsche Bank and Merrill Lynch, were fined for failing to respect reporting and supervisory rules.
“Should they deserve to get a parking ticket for it? Yes. Should it be painful enough that they don’t do it again? Yes. Should it be so overwhelming that it puts them out of business? Heck no,” said James Angel, a finance professor at Georgetown University.
FINRA is asking regulated brokers to report all trades for the sake of transparency. According to the latest data from FINRA, Robinhood Robinhood facilitated about 1.86 million tier-one shares for the week of March 15 and over 3.5 million tier-two shares in the first week of March.
The retail investing company Robinhood is reportedly seeking to raise more funds through bank loans ahead of its $30 billion IPO. In other news, the business may find itself in trouble after the latest Reuters report showed an alleged failure to report all trades the company facilitated.
About the Author
Luigi Wewege is the Senior Vice President and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an instructor at the FinTech School which provides online training courses on the latest technology and innovation developments within the financial services industry. Luigi is also the published author of "The Digital Banking Revolution."