In football, a “nutmeg” is a sneaky move in which a player kicks the ball through an opponent’s legs. US banking heavyweight JPMorgan Chase has just made a canny play of its own with the acquisition of robo-adviser Nutmeg.
The Wall Street bank’s latest deal values the UK digital wealth management platform at about £700m. That is a steep sum to pay for a business that has racked up more than £80m in cumulative pre-tax losses since launching in 2012.
But for deep-pocketed JPMorgan, it is a small price to pay to get its hands on a well-known brand that could help it build a bridgehead into the UK retail banking market.
Nutmeg is from a generation of robo-adviser start-ups that were hailed as disrupters of the UK’s personal finance industry. These businesses were supposed to provide cheap, online automated financial planning to the masses.
But robo-advisers have been hampered by low uptake rates that increased marketing cost. As a standalone company, Nutmeg has struggled to make money. With only £3.5bn under management for about 140,000 customers it continues to bleed cash. The most recent set of full accounts, which are for 2019, show the group made a pre-tax loss of £22m on £9.2m of turnover.
JPMorgan, with its towering $450bn market valuation and vast resources, should do better. The bank is planning to launch a digital consumer bank in the UK under its Chase brand later this year. It makes sense to complement that with a wealth management service.
Nutmeg’s cash burn is largely the result of its high marketing spend. It has sacrificed profits to build stronger brand recognition with mainstream consumers in the UK. This is valuable for a company such as JPMorgan, whose Chase brand is little known to retail customers in the UK.
Customer acquisition costs will remain steep. But JPMorgan will have no problem covering them. It spends $11bn a year on technology alone. Rival Goldman Sachs has already made inroads into the UK market with its Marcus brand. JPMorgan is now prepared to spend to score some goals on Nutmeg’s home turf.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.