June 23, 2025 • 42 mins
Anthony and Stephen explore how Cursor became the fastest-growing AI startup ever, from MIT roots to “vibe coding” hype and a $20 billion valuation in just 14 months.
Then, it’s boardroom drama in Spain as Sabadell spins off TSB to block a hostile takeover from BBVA — a strategic move with big implications for European banking.
Finally, Barclays brings in McKinsey to cut costs. What happens when consultants start targeting front-office jobs and what does it signal for banking careers in the age of AI?
(00:00) Intro & Topics in Focus
(02:40) Cursor and Vibe Coding
(18:23) The Spanish Banking Landscape and TSB
(30:51) Barclays and the Role of Consultants in Investment Banking
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome to today's show.
And we have 3 topics that we're going to cover.
And this just goes to show that we do listen to you, our
community and our audience because the first one we're
going to cover is Cursor. As Stephen said to me just
before I hopped on this call. And I must admit, Full
disclosure, I've done 0 research.
It's all on on Stephen and Aaronfor this.
(00:21):
But he started to talk to me about vibe coding and I was kind
of like, OK, so look, you and I,the listener, we're going to go
into this together. So don't worry, I'll probe him.
We'll find out what exactly is going on about because Cursor's
parent. Any spheres rise to potential
$20 billion valuation. So much to talk about, I'm sure.
(00:43):
And switching gears, covering banking.
Firstly, the news that Spain's Sabadell is interested in
acquiring Britain's TSB. This is a defensive move to
protect against Bbvas hostile acquisition and then finally to
move on to speak about Barclays bringing in the consultants,
which normally results in one thing.
(01:03):
But certainly I'm sure there's more to it, as Stephen will
explain. And McKinsey, of course, is
sniffing around trying to find cost savings for the investment
bank. So yeah, Stephen Vibe coding.
Explain coding? Yeah, anything.
Any piece of technology that makes our lives a little bit
easier, and I say this because and usually spends a lot of time
(01:29):
prepping for these podcasts. He's a very professional person,
but but this is the third, the third laptop, the third third
computer he's been using to get on and do this podcast this
afternoon. So.
Well, one would say that's commitment to the cause and to
the community, but. You know, it's huge commitment.
I do wonder whether kind of technology compounding upon
(01:50):
technology does result in a in aworse experience.
I'm currently struggling and shout out to anyone else who's
currently struggling with the quote UN quote useful auto
suggestions from Copilot across the Microsoft Office suite where
they do things like align thingsthat you don't want and complete
(02:11):
words that you don't want and create bullet points when you
don't want them. It's actually driving me crazy.
So I think I might just turn offthe whole thing.
But anyway, good segue into thisfirst story.
Shout out by the way, to Salvaba.
Salvaba who who commented on theYouTube, which is is a bit of a
(02:32):
thriving community. There's a lot of nice comments
on on our YouTube videos and some really good suggestions as
well. And this is 1 from one of our
listeners, one of our watchers saying, look, surely you've got
a cover cursor. This is the world's fastest
growing company. Potentially, it is the fastest
(02:54):
growing company from 0 to $100 million of annual recurring
revenue making it from 0 to $100million in 14 months.
So This is why we need to kind of pay a little bit of attention
to this company. And the headline that I wanted
to start with was that cursor maker Any Sphere, which is the
(03:14):
top Co approached over a deal todouble the company's valuation
to $20 billion. Now you might be thinking
Giselle $20 billion. Yeah, we see that kind of number
all the time. But just last month they closed
a funding round, $900 million funding round at a $10 billion
valuation. So they're kind of doubling
(03:37):
their valuation every month. And earlier on this year, back
in January, they raised at a $2.5 billion billion dollar
valuation. This is an absolutely breakout
company and it is all about thisconcept of AI assistance for
programmers, for software developers.
(03:58):
What I I teased you Anthony, with the phrase vibe coding.
And I think that's a that's a mass simplification and total
generalization of what the likesof cursor does.
But I'm just going to give you alittle bit of vibe coding and
and I'm and I'm sure that after this you'll be vibe coding away
this phrase. And it's really interesting.
(04:21):
It only got coined this vibe coding phrase back in February
of 2025, but it feels to me likeit's been around if you, if you
exist in these realms, it feels like it's been around for ages,
years. It came up by a guy called Andre
Carpathy. Carpathy bit of a bit of a
(04:41):
Twitter post and he basically said, look, I'm going to call
this thing that I'm doing now vibe coding, which is basically
you use an AI assistant like cursor or like Copilot or like
elements of Copilot and get GitHub, whatever it might be.
And you basically set you, you prompt code is generated.
(05:03):
Then you basically just accept the next suggestion, accept,
accept, accept copy and paste any solutions to bugs that might
be. And basically just let the AI
kind of go with very, very few prompts to get to your outcome.
And as a creator of beta versions of interesting software
(05:24):
layers, this vibe coding thing has become an absolutely huge
trend a in the world of like hobbyists and hackers, just, you
know, figuring stuff out. And that was actually where
Cursor got its first break. It was a absolutely classic
business model. It said, look, we're going to
give you know, software developers, as I said,
(05:48):
hobbyists, individual project people, a bunch of free stuff
that they're going to find useful AI supports in their, you
know, their projects and things like that.
Then we're going to give them a $20.00 a month pro account and
eventually a $40 a month business account.
And this swell, the ground swellof cursor cursors, B to C,
(06:09):
business to consumer base swelled pretty quickly.
Hundreds of thousands of users at the time of recording.
But what absolutely blows my mind, and we speak about this
quite a lot, so they only started hiring B to B, IE
selling cursors, software and artificial intelligence support
(06:33):
vehicles for software developers.
It only started hiring B to B salespeople at the back end of
last year. And now over half of the Fortune
500, including Open AI, Spotify,Major League Baseball,
Instacart, over half of the Fortune 500 now use this
(06:56):
company. They only started hiring
salespeople like 6 months ago and they, they are now at over
$500 million annual recurring revenue in a company that's just
over 2 years old. So this I think well done for
for raising it on the YouTube chat because this is absolutely
(07:17):
bonkers. So, so just give me a sense of
like, so where? Who started this?
I think I've seen a photo of this when it really blew up a
few months ago of four very young looking individuals, but
what's the back story here? Yeah, this is 4 guys from MIT
who were quote UN quote obsessedwith efficiency across software
(07:39):
development, which when I was atuniversity, I certainly wasn't
obsessed with that, I can tell you that much.
But anyway, I'm not sitting on a$20 billion company.
So they, you know, they got excited about the, the use of
large language models and the, and the ability to create
effectively first chat bots and then secondly, kind of code
prompts. And yeah, launched the company
(08:02):
with AI think it was a, an $8 million seed investment in
October 2023, So less than two years ago from and that round,
by the way, was led by open AI. So this this this ecosystem is
hugely nepotistic or hugely incestuous maybe is a better
(08:24):
word. I was going to ask, can you get
access to that silent type of magnitude of seed funding if
you're not at MIT or a Columbia or a major university?
Yeah, no. So I think you to have A, to
have evaluate or to have a funding round of that magnitude,
(08:45):
a, you've got to be on on to something pretty special.
And obviously open AI saw the two that saw the potential
fruits of this labour be you have to be playing in the right
watering holes so that you get seen right.
So whether it's MIT or whether it's Stanford, Stanford's
obviously the, the archetypal incubator for smart people
(09:08):
wanting to do startups. But there would have been some
kind of demo day, some kind of pitching day.
And maybe someone that knew a guy from open AI turned up to
this MIT pitching day and said, these guys are smart.
There's four of them. They've got the right, they've
got, they're made of the right stuff and they're thinking about
things the right way. Why didn't you go and meet them?
And that was how I assume that first investment round.
(09:32):
And then obviously the wheels are off, right?
You know, you, you know, if you're, if you're on a rocket
ship, if you're building this momentum, you just go from
strength to strength. And it is remarkable how they
are batting away investors, they're batting away potential
acquirers. You know these guys are turning
down $20 billion valuations for a less than two year old
(09:54):
company. I was going to say like from a
big tech perspective you just mentioned there.
I think on top of the show your frustrations with Copilot, for
example, I mean, surely with thestrategy of someone like
Microsoft with their enterprise packages, this sounds like a an
easy win if they could pick it up and through his tentacles
(10:17):
with his relationship through open AI and their funding rounds
that they've had in this very company.
Like does it all get absorbed atsome point?
Yeah, I think there's this classic again, it all goes back
to strategies. It's it's specialisation versus
generalized or you know, you have this concept of dis
economies of scale. And because Microsoft is such a
(10:39):
big beast and within it is, you know, you've got GitHub, which
is still a favorite amongst developers and obviously they've
got Co pilots and a whole raft of different things, including
their relationship with open AI.But it may lead to the fact that
they they're trying to create aneverything solution and trying
(11:00):
to be interoperable across different platforms, whether
it's GitHub to copilot, copilot to their office suite, whatever
it might be that they end up notdoing anything particularly
well. And I think the the to excuse
upon the good vibes over cursor is that they started this thing
(11:21):
from the ground up. They just wanted to make Coda's
lives better using the nascent technology of the day, right?
It's so much easier. And This is why it's always fun
to be a start up so much easier when there is a new, there is
new technological breakthrough to create something afresh.
Whereas if you've got old rails,old tech stacks, and you're
(11:45):
having to try and retrofit a newsolution into an older business
model, it becomes a lot clunkierand it becomes a lot harder.
You have this, you know, massivesunk cost fallacy of investing
billions of dollars in a not quite state-of-the-art version
of what is really, really kicking off.
And that's why, happily, we still have these small companies
(12:08):
that are great, that are gainingprominence despite the heft and
despite the size of these big beasts, the likes of Microsoft
and Amazon. And any idea how the marketing
aspects of this works at the beginning?
Is it because of the niche Ness almost of we're talking about a
coding platform essentially, andthat's a domain in itself which
(12:30):
has a niche. And therefore this is like the
coolest, most most advanced thing and a small group of
people use it and it grows fast and organically that way rather
than a coordinated way of it. Was this almost like an
unstructured thing that just ranaway with itself over and above
a really tactical way of going to market with a product?
(12:52):
Totally and and one of the articles that I was reading was
calling it the viral coefficientin developer tools.
So the viral viral coefficient basically means how viral is
this product? How is it going to scale from
word of mouth to word of mouth? And when one team member
dramatically improves their coding speed, you know, their
(13:13):
colleagues are going to notice immediately and want a piece of
that action. And they're probably going to
put it on a, you know, a subreddit and speak about it and
say this thing needs to be checked out.
It is a different, you know, virality is a, is a function of
the, the speed at which one thing can spread across a
particular domain. And, and obviously the Internet
(13:35):
developers are very, very kind of prolific users of the
Internet and you know, if they can save 50% of their time,
they're going to be talking to people about it.
Yeah, it'd be super interesting to see that initial tipping
point from when it was very early, early and there's only a
handful of people to then what saw it just massively expand.
(13:56):
Yeah. The, the, the, the Mal, the
Malcolm Gladwell tipping point, What at what point did it did
it, did it move? And just just to kind of finish
on this piece, I just wanted to look up a few other startups
that have hit that $100 million of annual recurring revenue in a
very, very short period of time because it is claimed that
(14:18):
Cursor with 14 months from zero to 100 is the quickest.
And I think well, who knows, there's different ways of
looking at this, but it looks like it is behind it.
Looking at this, the chart I've got at the moment, 18 months
Wiz, which is a company we covered a few weeks ago,
recently acquired by Google, Then twenty months deal D EE L,
(14:41):
which is HR software, 24 months Ramp, which is corporate cards.
And by the way, the thing that Cursor deal and ramp having
cover it have in common is that they are an app well, they are a
layer above the LLMS to make life very, very easy at an
enterprise level. So you've got the you've got the
(15:04):
large language models, you've got the huge processing power,
you've got the amazing innovation and breakthrough of
of some of these anthropic and open AI like companies.
But there seems to be a lot of value very, very quickly
accruing to the application layer, which is effectively what
cursor is. It's taking existing large
language models and some of its own and putting that code
(15:25):
application layer on top. And my gosh, they, you know,
they've gone from zero to 20 billion.
Super interesting. Question thing, because I know
this is you in in your domain isthat is this the normal stepping
stones of when a new technology breaks is at that LLM level,
then you get the application level and then what's the next
(15:47):
level? Because I know that this is kind
of history repeating itself almost, it feels like.
Well, yeah, let's let's take 2 examples from the last 25 years.
Well, the last 40 years maybe the 1st is the Internet.
So the Internet obviously was founded not by a private entity.
It was founded out of a combination of, you know,
(16:08):
military uses and our good friend Tim Berners Lee and hit
the work that he did. So obviously the value did not
accrue to the architecture because there was no private
entity to take the value. And obviously hundreds of well
10s of trillions of dollars of value have been layered on top
of that, the application layer of the Internet being Amazon and
(16:29):
Google, etcetera. Then, then the second example,
which is maybe slightly more relevant, is iOS and opening
Apple, opening up the App Store and developer tools for its new
piece of hardware, the iPhone. And this was more interesting
because you had a ton of value accruing to Apple because it was
(16:54):
the, you know, and there were, there were there the, the
synergies and the net and the, and the benefits, the mutual
benefits of a great app being created, A, for the app
developer and then B, also for Apple, because more people were
buying iPhones and more people were buying stuff off the App
Store. And the App Store took 20% or
(17:16):
whatever the, or takes 20% or whatever the number is.
So I would say that this new tech tech revolution is going to
look more like the iOS store than the Internet because the
rails, the infrastructure is owned by private companies.
(17:36):
But you're going to see, you know, the next Facebook, which
is an application layer on top of the iOS or on top of the on
top of the developer tools. You're going to see the next
trillion dollar companies come out of that application layer.
And by the way, open AI might bethat application layer as well,
(17:57):
right? It's got the hardcore large
language models and you know, and, and capabilities.
And then it is trying to turn itinto a range of applications
that lie on top. So there will be trillions of
dollars of value and, and, and companies that we hadn't heard
of now that will become household names in, in, in two
(18:17):
or three years. And that's why everyone's
getting so hyped, right? Cool.
All right. Well, let's let's move on and
let's talk about some of these Spanish banking giants because
that's is what they are. And I'm assuming particularly if
you're in the US, you've probably never even heard of
them. And also Britain's TSB, which I
didn't even know still existed, to be quite frank.
(18:38):
Yeah, yeah, I know We go from the kind of the heady highs of
Silicon Valley and and the new economy and and trillions of
dollars of value accrue. Yeah.
This is old school. This is old school, but by the
way, if you're going to work in this space, this is real life.
And even this is a very excitingform of real life in the world
(19:00):
of M&A and investment banking. And it's a really, really
interesting story because it involves A hostile takeover and
they're always really fun. So obviously not maybe for the
company that's being taken over.But this is the story of Banco
Sabadell, which I was reading earlier on, was founded in 1891
by 128 families in Catalonia, inSpain, with the aim of financing
(19:23):
the local industry. And interesting enough, they're
still massive in Catalonia. They're the biggest bank there
with a smaller presence outside.But anyway, Banco Sabadell, a
slightly subscale, I think it's the fourth largest bank, maybe
the 5th largest bank in Spain. It has announced that it is
considering spinning off its UK equity.
(19:48):
Well, ownership of TSBI, think the people in the US are you the
UK? Think about TSB as the adjunct
to Lloyds Lloyd TSB. But TSB is a standalone entity
actually now owned by Sabadell, bought it in 2017 I believe.
It's a pretty impressive company.
So they acquired it in 2015, apologies for about 1.7 billion.
(20:10):
They spent years turning the business around to the extent
the TSBTSB posted a pre tax profit of £290 million in 2024,
up 53,000,000 year on year. It's highest since 2013.
It's got 175 branches, High Street branches, old school
physical across the UK and it has more than 5 million
(20:34):
customers and 5000 staff. Now you know, a pretty decent
business. And by the way, I wouldn't, I
wouldn't like to speculate as towhat is harder.
One, creating the next $20 billion application layer to A
to a large language model. Or two turning a British High
(20:56):
Street bank from a loss making entity to one that generates pre
tax profits of £290 million. I'd probably rather the first
challenge than the second. It's so remarkably difficult to
take these very, very old institutions that have got a
fixed business model and try andmake them efficient.
(21:17):
But anyway, TSB potentially being spun off.
Now why? This is the most interesting
point. They are potentially being spun
off because Sabadell is facing ahostile acquisition, a hostile
takeover from the much larger BBVA who approached.
(21:38):
I think we covered this on the pod six months ago.
They approached Sabadell a year ago, tabling of $11.4 billion
billion euro offer not recommended by the board.
So it went hostile and BBVA are really up for this.
They've got it cleared by the European Commission because
obviously this is going to have regulatory and antitrust
(22:02):
considerations. They got it cleared by the
Spanish equivalent of the FTC. They haven't yet got it cleared
by the Spanish government who are worried about, you know,
monopoly power and, and, and thelack of choice from a, from a
competitive perspective. But if they can do that, they
will formally take that €11.4 billion offer to the
(22:26):
shareholders and say, look, we're Better Together.
You're going to own a slice of BBVA.
We're consolidating. The industry is consolidate.
Consolidating is all about scale.
It's all about synergies. It's all about, you know, a
defensive consolidation. That's the way that BBVA are
approaching this. Obviously, the board of
directors don't really want thisto happen because they didn't
(22:48):
recommend it. So what they're thinking of
doing is they're saying, all right, if we can spin off TSB,
right, raise 2 1/2 billion quid and then return that 2 1/2
billion quid to shareholders as a special dividend.
That automatically makes the company less valuable and makes
that €11.4 billion offer much more expensive.
(23:11):
Because suddenly you're buying something X the profit center,
which is TSB, and you've just given away that the proceeds of
that to existing shareholders. So it's kind of a roundabout
defensive strategy to say, look,BBVA, we don't want you to buy
us and we're willing to spin offsome some of our most profitable
(23:32):
assets in order for you not to get your hands on the rest of
it. So it's an absolutely
fascinating story. What's what's the phrase, is it
like cutting off your nose to spite your face sort of thing
where it feels a little bit likehere is a game of bluff.
So I'd be like, OK, this is a profitable unit that you have.
(23:53):
You want to stay independent? Go ahead then call my bluff.
Spin it off, let and and and let's see how that goes.
Well, what's super? Yeah, I totally agree.
What's super interesting about this is that in the context of
the takeover bid, any major asset sale from Sabadell would
require shareholder approval. So I've just got this kind of
(24:16):
this, this image in my mind of two letters.
I'm a Sabadell shareholder, 2 letters arriving on my, you
know, through my letterbox, one saying do I approve of the TSB
sale and one saying, do I approve of the BBVA takeover?
Because I'm going to have to tryand figure out which one.
(24:37):
You know, if I agree with the TSB sale, I will probably not
agree with the BBVA takeover. And how do I come to a decision
that benefits me most as a shareholder?
And just just as an aside, the BBVA offer, it's not massively
low balling. You know, it's still I think a
35% premium on the 30 day average share price before it
(24:59):
was announced, right? So it's not like BBVA, you know,
taking the piss. They're just the Sabanel ball.
Just don't want to be sold. It's as simple as that.
Is there is there any UK input into the dialogue that's
happening here? I know Sabadell said took on
(25:19):
TSB, but you said also there's 175 branches, there's lots
millions of customers and employees in the, you know, to
to the tune of several thousand.So do they have it?
Is there any UK government inputin this in terms of what
happens? Yeah, I think it's interesting
because it's not as if, it's notas if TSB is a kind of is a
(25:41):
national institution that has been independent for a very long
period of time. And this would be the first
foreign incursion into the British banking scene.
The fact that the most likely acquirer for TSB is probably
NatWest, which again you know, British probably probably will
(26:02):
be a good owner of TSB. Although I would say that with a
slight note of caution because there there will be towns up and
down the country that have a NatWest right next to a TSB
branch. And obviously the synergies shut
one of them down and become become both.
And that might, you know, that might result in a reduction of
(26:24):
staff and maybe even a reductionof choice on the High Street.
So yeah, the and the same will apply if Barclays buy them or if
Santander buys them or if HSBC buys them.
So it probably will get looked at.
There's there's very, very little reason why it wouldn't.
But would it get blocked by the UK?
Probably not. I'm conscious we have a lot of
(26:48):
US listeners. So can you explain to me like
who NatWest are and how NatWest how, where they sit in the
banking scene in terms of the composition of their business to
other banks like Barclays and HSBC and so on?
Yeah, You wouldn't have heard ofNat West because they don't
really have a strong investment bank presence, certainly like
Barclays and to a lesser extent HSBC.
(27:08):
They're also not a massively international bank.
When you think of. I think when you think of HSBC,
you think Asia, global bank, trade finance, lending, business
banking, that kind of stuff, right.
If you think of when you think of Barclays, you probably think
you know, trying to play with the big boys from an investment
bank perspective, trying to be the bridge between Europe and
(27:32):
and and the US. But when you think of NatWest,
you think much more about more traditional commercial corporate
lending, corporate relationship management, the kind of flow
products of keep that that are required to keep the lights on a
business and obviously a big retail presence as well.
I think it is now the largest retail bank in the UK.
(27:54):
Someone will probably correct meif I am wrong, but yeah, that's
why you wouldn't have heard of it.
But again, it's it's quite interesting.
If you're coming from a from AUSperspective, you've got
obviously the big bulge bracket universal banks that you'll see
everywhere. Then you've got the investment
banks, which you'll probably only see in certain major
(28:14):
financial hubs around the country.
And then you've got 10s of thousands of smaller banks,
right. Obviously, there's been great
consolidation, the likes of Wells Fargo being big
consolidators that you don't seeas much over on this side of the
pond. But you have all of these quote,
UN quote regional or local or High Street banks of which if
(28:36):
you were to, if you were to comeover to the UK, NatWest would
probably to be the biggest one, maybe the Wells Fargo.
I don't know if that's the rightanalogy, but something,
something like that. OK.
So if you to conclude then if you zoom out and put this deal
in context with the sector overall, what signals are you
getting about the wider trends in the UK banking sector and and
(28:58):
just generally because this includes Europe as well?
Yeah, I think, I think we've spoken about this before.
There is this general assumptionand we looked at it with the the
UniCredit deal over in Italy buying the German bank, Commerce
Bank. So there is this desire for
defensiveness in scale. And again, a bank is pretty,
(29:21):
it's a pretty simple business right?
In, in, in it's essence, the bigger the deposit based, the
bigger the opportunity to make money through lending and the
more defensible you are, the more, the more capital you have,
the more defensible you are. So scale is super, super
important. And you're seeing this in
Europe, obviously you're seeing this potentially with BBV and
(29:42):
Sabadell. And in the UK, weirdly enough,
the UK banking sector is not in again, anyone that's old enough
to remember 2000 and eight, 2009through to about 2015 and
beyond. UK banking sector is not in bad
shape after years of hardship, but there is still this move
towards consolidation. I think the likes of Metro Bank,
(30:06):
I think they were, I think they've drawn interest from
Poland St. Capital, don't really know much
about Poland St. Capital.
And again, Santander UK, spoken a lot about Santander in the
past, is rumored to be on that Wradar as well.
So is there a bit more consolidation to come to get
that scale of the deposit base and to get the synergies of not
(30:27):
having to have, you know, 2 HighStreet branches on every High
Street? Yeah, I think that's probably
the way it's going. You don't want to be too skinny
in terms of one or two or two orthree banks taking the market
because then the consumer loses choice.
But you certainly want to have some pretty robust institutions
that aren't going to wilt as soon as the next recession
(30:49):
comes. All right, on to our final
story. And yeah, interested about this
one because I think when I talk to and interact at least with a
lot of students, there tends to be like these career pathways
and they always tend to think ofthem as very defined.
It's like accountants and you goand work at one of the Big Four,
for example, or consulting, you go work at McKinsey or
(31:09):
Accenture, or you get an investment banking, you work at
Goldman's or Ms. But yeah, interested in this story to see
how in this case, the two latterones intersect, so to speak.
So what's what's happening here with Barclays?
Yeah. I mean, the headline here is
Barclays brings in the consultants to find efficiencies
in its investment bank. Barclays hiring McKinsey to help
(31:32):
simplify its investment bank andidentify hundreds of millions of
dollars in potential savings. When I left university, I think
I probably should have become a consultant.
So there's, there's something quite lovely about, you know,
being young, getting into like a, a, a big business, telling
(31:55):
them what to do and then buggering off again before you
can actually see whether what you said has worked.
I know the reason why I say thisas I remember very, very clearly
when I was at HSBC working on a big strategy and, and efficiency
project much like this one that was announced by Barclays.
(32:16):
And I was upstairs as it were, you know, working on this
project with, with some of the some of the senior people.
And we had BCG Boston Consultancy Group to help run
this analysis and help do this big strategic change project.
And they were with me in the office for a few months.
Guy that I sat next to, bearing in mind I was only 2526.
(32:37):
Guy that sat, I sat next to justout of universities 21.
He's furiously, furiously smart.Shout out to Dominic if you're,
if you're listening, furiously smart.
But basically he was just telling us that we need to fire
20,000 people in our business. You know, he'd run the numbers,
he'd done the models, he'd done the analysis.
He's extremely confident that this was what we should do if we
(33:01):
were to achieve the outcomes that we wanted to achieve within
that part of the. Can I just ask though, on that
point, like someone of that age might have the, the technical
capability to run the models, dothe numbers, but you and I know
that the success of a, a change strategy, a transition that you
know, there are people involved and there's people who stay
(33:23):
despite those people who are lost.
And so, and if you're going to pivot strategy as well as reduce
the workforce, so how, how that sort of person, I mean, how is
that? How do they acquire those skills
in order to like put the wrapperaround the what the model is
saying? Yeah, there's a, there's a
(33:46):
couple of, there's a couple of answers to that question.
The first is I think that he was, he was remarkably good.
The, the, the second is the way that a consultancy project or
engagement has historically worked is you've got a, a, a
very senior partner that does a lot of the initial negotiations
in the pitch and is there periodically to check in on the
(34:10):
project team that is doing the thing right.
And it might actually be that partner that is doing the big
summary presentation and recommendations at the end of
the period. So that you know, that tends to
be what happens. However, there are also
obviously plenty of instances where you've got you got get the
(34:30):
guys from BCG and they do a piece of work.
Let's say it's a three month project to come up with a bunch
of implementation recommendations through all of
their using all of their all of the tools in the consulting
toolkit. But then they are asked to be
kept on to help actually implement.
So This is why you might have some friends as as as kind of
(34:54):
people fresh out of university here.
You might have friends that havebeen working on one particular
their work. They work for consultants.
And in your mind, you think, oh,you know, a month project here,
a couple of months here, come upwith A50 slide pitched, you
know, presentation off you jump jog to the next exciting thing.
You'll have some consultants that are basically just
(35:15):
employees of a company, right? You know, you'll have some
consultants that have worked forthe same company or the same
government or the same civil service branch for the last
three years because effectively you are a highly skilled
resource that doesn't have to befully employed.
And as we mentioned at the top of this show, you, you know, you
(35:37):
can be the one where the blame is laid, right?
So, oh God, the consultants camein.
You know, it was, it wasn't up to us firing 300 people.
You know, the consultants came in and they, you know, they're
the ones that you should get angry about of that is that is a
very kind of simplistic view, but it's it's definitely
something that senior members say.
So let's. Let's go back then to to
(35:59):
Barclays. I know they've they are, as you
said, they're going through thisdramatic shift at the moment.
It's been in play for for a while.
But can you just go over that again?
What are their goals? What they trying to get out of
this kind of slimming down exercise?
Yeah. So this is the CS, the CEOCS,
(36:23):
Venk Venk. I knew that would test you even
with your prowess for these sorts of things.
I'm. Absolutely, I'm rubbish at
names. Just say CS.
Sorry, CS Venkata Krishnan CS. There you go.
CS So the CEO, he's been under pressure to boost returns across
the bank and the investment bankin particular consumes a lot of
(36:45):
capital, obviously, which is thethe fuel for any bank.
And a part of his strategy whichhe laid out in 2024 was to find
£2 billion worth of efficiency savings across the bank by 2026.
And in fact, you know, this is the latest stage, I think
earlier on this year, they cut 200 jobs across investment
(37:06):
banking, global markets and research.
This time last year, they cut 200 jobs across investment
banking, global markets and research.
And this project with McKinsey is all about trying to find
efficiencies, duplications, potential savings, automation
across the front office, across finance, risk, technology,
(37:30):
onboarding, know your customer credit, all of this stuff,
right? You know, is there inefficiency
there? And obviously whenever you hear
the word automation, you probably think to yourself, all
right, heads are going to roll. Bring in the.
That's what I say. The strategy here then, because
I know that they've been on the ticket of some pretty big deals,
(37:53):
Barclays, perhaps there's there's a few you can remind me
of. But is there that that strategy
here then like with where they want to focus and given the
general nature of the ebb and flows, just to go back, I know
we talk about it quite a lot of what makes a bank like JP Morgan
such a dominant banking giant because of its multiple
(38:13):
tentacles. So what was so Barclays here
seems like they're doing some some great guns on some big M&A
deals and then they're dropping 200 people within the team.
Well, yeah, it's a very interesting point.
So yeah, Barclays is performing pretty well.
It's it's up 20% this year shareprice, which is more than all of
(38:38):
its peers across the UK and and the US as well.
So it's having a great start to the year.
It's ranked 6th in terms of yearto date investment bank league
table with a particular boost inits M and A practice.
I think it was on the Wiz acquisition that we spoke about
(39:00):
the $32 billion Alphabet acquisition of Wiz and then
Sunoco's acquisition of Parklandfor 9 billion.
So it's been on some pretty hefty tickets that have shot it
up the ranking. But this is interesting, right?
And this is unfortunately a trend that we are going to see
play out over the next 5 to 10 years, which is revenues going
(39:21):
up, but personnel is going down because people are able to do
more with less. And to an extent, AI has not yet
hit investment banks in the sameway.
Sorry, I've mentioned that. There you go.
So just as an aside, I'm going to let Ant pause whilst I
(39:41):
mentioned AI for I think probably the 65th time in this
episode. And suddenly, the fire.
People can't see there's. A button in the office.
And every time you say it more than five times like a crank,
and I hit the button and that was the button going on, not the
fire at all. Yeah, exactly the the AI button.
(40:01):
But I think it is it's coming inslowly, but it's it's an
important trend to watch out foras young people that are trying
to figure out, all right, A, should I be breaking into this
industry? B If I'm really into it, how do
I break into this industry and then see what are the kind of
skills that are going to be resilient?
(40:24):
In this industry over the next 10/15/20 years, we can answer
and amplify some of those questions.
I think we can answer all of them, yeah.
New technology thing continue coming, businesses are going to
continue facing challenges. They're going to want to operate
lean and double down, lean into those technological advantages
and tools and application layer.Feels like consultants.
(40:46):
Feels like consultancy is going to be a pretty good gig.
Well, this, this is it. Get that, you know, bring the
consultants in. So whenever I, you know, I spend
quite a lot of time speaking to students about this.
And, and again, my advice is find a job where you are doing
lots of different things and engaging with lots of different
(41:08):
stakeholders at different levels, having conversations
about different elements during the course of a single day or
over the course of a week. And you're probably quite
defensible because you're learning transferable skills.
You're learning nuance, subtlety, negotiation, how to
convince people, how to structure your analytical kind
of hierarchies and things like that.
(41:30):
And actually, as much as I hate to say it, consulting is a very
is it definitely gives you thoseskills.
So maybe I missed out on a career.
Come on. It's not too late.
Not too late. If McKinsey, you're listening to
this, I'm in. All right, cool.
Good stuff. We'll wrap it up there.
As ever, any questions at all, do let us know.
And don't forget to subscribe and follow the show.
(41:53):
Turn on notifications, weekly content always coming out and
keep vibing, Stephen. Keep vibing, Ann.
Hello and welcome to today's show.
And we have 3 topics that we're going to cover.
And this just goes to show that we do listen to you, our
community and our audience because the first one we're
going to cover is Cursor. As Stephen said to me just
before I hopped on this call. And I must admit, Full
disclosure, I've done 0 research.
It's all on on Stephen and Aaronfor this.
(00:21):
But he started to talk to me about vibe coding and I was kind
of like, OK, so look, you and I,the listener, we're going to go
into this together. So don't worry, I'll probe him.
We'll find out what exactly is going on about because Cursor's
parent. Any spheres rise to potential
$20 billion valuation. So much to talk about, I'm sure.
(00:43):
And switching gears, covering banking.
Firstly, the news that Spain's Sabadell is interested in
acquiring Britain's TSB. This is a defensive move to
protect against Bbvas hostile acquisition and then finally to
move on to speak about Barclays bringing in the consultants,
which normally results in one thing.
(01:03):
But certainly I'm sure there's more to it, as Stephen will
explain. And McKinsey, of course, is
sniffing around trying to find cost savings for the investment
bank. So yeah, Stephen Vibe coding.
Explain coding? Yeah, anything.
Any piece of technology that makes our lives a little bit
easier, and I say this because and usually spends a lot of time
(01:29):
prepping for these podcasts. He's a very professional person,
but but this is the third, the third laptop, the third third
computer he's been using to get on and do this podcast this
afternoon. So.
Well, one would say that's commitment to the cause and to
the community, but. You know, it's huge commitment.
I do wonder whether kind of technology compounding upon
(01:50):
technology does result in a in aworse experience.
I'm currently struggling and shout out to anyone else who's
currently struggling with the quote UN quote useful auto
suggestions from Copilot across the Microsoft Office suite where
they do things like align thingsthat you don't want and complete
(02:11):
words that you don't want and create bullet points when you
don't want them. It's actually driving me crazy.
So I think I might just turn offthe whole thing.
But anyway, good segue into thisfirst story.
Shout out by the way, to Salvaba.
Salvaba who who commented on theYouTube, which is is a bit of a
(02:32):
thriving community. There's a lot of nice comments
on on our YouTube videos and some really good suggestions as
well. And this is 1 from one of our
listeners, one of our watchers saying, look, surely you've got
a cover cursor. This is the world's fastest
growing company. Potentially, it is the fastest
(02:54):
growing company from 0 to $100 million of annual recurring
revenue making it from 0 to $100million in 14 months.
So This is why we need to kind of pay a little bit of attention
to this company. And the headline that I wanted
to start with was that cursor maker Any Sphere, which is the
(03:14):
top Co approached over a deal todouble the company's valuation
to $20 billion. Now you might be thinking
Giselle $20 billion. Yeah, we see that kind of number
all the time. But just last month they closed
a funding round, $900 million funding round at a $10 billion
valuation. So they're kind of doubling
(03:37):
their valuation every month. And earlier on this year, back
in January, they raised at a $2.5 billion billion dollar
valuation. This is an absolutely breakout
company and it is all about thisconcept of AI assistance for
programmers, for software developers.
(03:58):
What I I teased you Anthony, with the phrase vibe coding.
And I think that's a that's a mass simplification and total
generalization of what the likesof cursor does.
But I'm just going to give you alittle bit of vibe coding and
and I'm and I'm sure that after this you'll be vibe coding away
this phrase. And it's really interesting.
(04:21):
It only got coined this vibe coding phrase back in February
of 2025, but it feels to me likeit's been around if you, if you
exist in these realms, it feels like it's been around for ages,
years. It came up by a guy called Andre
Carpathy. Carpathy bit of a bit of a
(04:41):
Twitter post and he basically said, look, I'm going to call
this thing that I'm doing now vibe coding, which is basically
you use an AI assistant like cursor or like Copilot or like
elements of Copilot and get GitHub, whatever it might be.
And you basically set you, you prompt code is generated.
(05:03):
Then you basically just accept the next suggestion, accept,
accept, accept copy and paste any solutions to bugs that might
be. And basically just let the AI
kind of go with very, very few prompts to get to your outcome.
And as a creator of beta versions of interesting software
(05:24):
layers, this vibe coding thing has become an absolutely huge
trend a in the world of like hobbyists and hackers, just, you
know, figuring stuff out. And that was actually where
Cursor got its first break. It was a absolutely classic
business model. It said, look, we're going to
give you know, software developers, as I said,
(05:48):
hobbyists, individual project people, a bunch of free stuff
that they're going to find useful AI supports in their, you
know, their projects and things like that.
Then we're going to give them a $20.00 a month pro account and
eventually a $40 a month business account.
And this swell, the ground swellof cursor cursors, B to C,
(06:09):
business to consumer base swelled pretty quickly.
Hundreds of thousands of users at the time of recording.
But what absolutely blows my mind, and we speak about this
quite a lot, so they only started hiring B to B, IE
selling cursors, software and artificial intelligence support
(06:33):
vehicles for software developers.
It only started hiring B to B salespeople at the back end of
last year. And now over half of the Fortune
500, including Open AI, Spotify,Major League Baseball,
Instacart, over half of the Fortune 500 now use this
(06:56):
company. They only started hiring
salespeople like 6 months ago and they, they are now at over
$500 million annual recurring revenue in a company that's just
over 2 years old. So this I think well done for
for raising it on the YouTube chat because this is absolutely
(07:17):
bonkers. So, so just give me a sense of
like, so where? Who started this?
I think I've seen a photo of this when it really blew up a
few months ago of four very young looking individuals, but
what's the back story here? Yeah, this is 4 guys from MIT
who were quote UN quote obsessedwith efficiency across software
(07:39):
development, which when I was atuniversity, I certainly wasn't
obsessed with that, I can tell you that much.
But anyway, I'm not sitting on a$20 billion company.
So they, you know, they got excited about the, the use of
large language models and the, and the ability to create
effectively first chat bots and then secondly, kind of code
prompts. And yeah, launched the company
(08:02):
with AI think it was a, an $8 million seed investment in
October 2023, So less than two years ago from and that round,
by the way, was led by open AI. So this this this ecosystem is
hugely nepotistic or hugely incestuous maybe is a better
(08:24):
word. I was going to ask, can you get
access to that silent type of magnitude of seed funding if
you're not at MIT or a Columbia or a major university?
Yeah, no. So I think you to have A, to
have evaluate or to have a funding round of that magnitude,
(08:45):
a, you've got to be on on to something pretty special.
And obviously open AI saw the two that saw the potential
fruits of this labour be you have to be playing in the right
watering holes so that you get seen right.
So whether it's MIT or whether it's Stanford, Stanford's
obviously the, the archetypal incubator for smart people
(09:08):
wanting to do startups. But there would have been some
kind of demo day, some kind of pitching day.
And maybe someone that knew a guy from open AI turned up to
this MIT pitching day and said, these guys are smart.
There's four of them. They've got the right, they've
got, they're made of the right stuff and they're thinking about
things the right way. Why didn't you go and meet them?
And that was how I assume that first investment round.
(09:32):
And then obviously the wheels are off, right?
You know, you, you know, if you're, if you're on a rocket
ship, if you're building this momentum, you just go from
strength to strength. And it is remarkable how they
are batting away investors, they're batting away potential
acquirers. You know these guys are turning
down $20 billion valuations for a less than two year old
(09:54):
company. I was going to say like from a
big tech perspective you just mentioned there.
I think on top of the show your frustrations with Copilot, for
example, I mean, surely with thestrategy of someone like
Microsoft with their enterprise packages, this sounds like a an
easy win if they could pick it up and through his tentacles
(10:17):
with his relationship through open AI and their funding rounds
that they've had in this very company.
Like does it all get absorbed atsome point?
Yeah, I think there's this classic again, it all goes back
to strategies. It's it's specialisation versus
generalized or you know, you have this concept of dis
economies of scale. And because Microsoft is such a
(10:39):
big beast and within it is, you know, you've got GitHub, which
is still a favorite amongst developers and obviously they've
got Co pilots and a whole raft of different things, including
their relationship with open AI.But it may lead to the fact that
they they're trying to create aneverything solution and trying
(11:00):
to be interoperable across different platforms, whether
it's GitHub to copilot, copilot to their office suite, whatever
it might be that they end up notdoing anything particularly
well. And I think the the to excuse
upon the good vibes over cursor is that they started this thing
(11:21):
from the ground up. They just wanted to make Coda's
lives better using the nascent technology of the day, right?
It's so much easier. And This is why it's always fun
to be a start up so much easier when there is a new, there is
new technological breakthrough to create something afresh.
Whereas if you've got old rails,old tech stacks, and you're
(11:45):
having to try and retrofit a newsolution into an older business
model, it becomes a lot clunkierand it becomes a lot harder.
You have this, you know, massivesunk cost fallacy of investing
billions of dollars in a not quite state-of-the-art version
of what is really, really kicking off.
And that's why, happily, we still have these small companies
(12:08):
that are great, that are gainingprominence despite the heft and
despite the size of these big beasts, the likes of Microsoft
and Amazon. And any idea how the marketing
aspects of this works at the beginning?
Is it because of the niche Ness almost of we're talking about a
coding platform essentially, andthat's a domain in itself which
(12:30):
has a niche. And therefore this is like the
coolest, most most advanced thing and a small group of
people use it and it grows fast and organically that way rather
than a coordinated way of it. Was this almost like an
unstructured thing that just ranaway with itself over and above
a really tactical way of going to market with a product?
(12:52):
Totally and and one of the articles that I was reading was
calling it the viral coefficientin developer tools.
So the viral viral coefficient basically means how viral is
this product? How is it going to scale from
word of mouth to word of mouth? And when one team member
dramatically improves their coding speed, you know, their
(13:13):
colleagues are going to notice immediately and want a piece of
that action. And they're probably going to
put it on a, you know, a subreddit and speak about it and
say this thing needs to be checked out.
It is a different, you know, virality is a, is a function of
the, the speed at which one thing can spread across a
particular domain. And, and obviously the Internet
(13:35):
developers are very, very kind of prolific users of the
Internet and you know, if they can save 50% of their time,
they're going to be talking to people about it.
Yeah, it'd be super interesting to see that initial tipping
point from when it was very early, early and there's only a
handful of people to then what saw it just massively expand.
(13:56):
Yeah. The, the, the, the Mal, the
Malcolm Gladwell tipping point, What at what point did it did
it, did it move? And just just to kind of finish
on this piece, I just wanted to look up a few other startups
that have hit that $100 million of annual recurring revenue in a
very, very short period of time because it is claimed that
(14:18):
Cursor with 14 months from zero to 100 is the quickest.
And I think well, who knows, there's different ways of
looking at this, but it looks like it is behind it.
Looking at this, the chart I've got at the moment, 18 months
Wiz, which is a company we covered a few weeks ago,
recently acquired by Google, Then twenty months deal D EE L,
(14:41):
which is HR software, 24 months Ramp, which is corporate cards.
And by the way, the thing that Cursor deal and ramp having
cover it have in common is that they are an app well, they are a
layer above the LLMS to make life very, very easy at an
enterprise level. So you've got the you've got the
(15:04):
large language models, you've got the huge processing power,
you've got the amazing innovation and breakthrough of
of some of these anthropic and open AI like companies.
But there seems to be a lot of value very, very quickly
accruing to the application layer, which is effectively what
cursor is. It's taking existing large
language models and some of its own and putting that code
(15:25):
application layer on top. And my gosh, they, you know,
they've gone from zero to 20 billion.
Super interesting. Question thing, because I know
this is you in in your domain isthat is this the normal stepping
stones of when a new technology breaks is at that LLM level,
then you get the application level and then what's the next
(15:47):
level? Because I know that this is kind
of history repeating itself almost, it feels like.
Well, yeah, let's let's take 2 examples from the last 25 years.
Well, the last 40 years maybe the 1st is the Internet.
So the Internet obviously was founded not by a private entity.
It was founded out of a combination of, you know,
(16:08):
military uses and our good friend Tim Berners Lee and hit
the work that he did. So obviously the value did not
accrue to the architecture because there was no private
entity to take the value. And obviously hundreds of well
10s of trillions of dollars of value have been layered on top
of that, the application layer of the Internet being Amazon and
(16:29):
Google, etcetera. Then, then the second example,
which is maybe slightly more relevant, is iOS and opening
Apple, opening up the App Store and developer tools for its new
piece of hardware, the iPhone. And this was more interesting
because you had a ton of value accruing to Apple because it was
(16:54):
the, you know, and there were, there were there the, the
synergies and the net and the, and the benefits, the mutual
benefits of a great app being created, A, for the app
developer and then B, also for Apple, because more people were
buying iPhones and more people were buying stuff off the App
Store. And the App Store took 20% or
(17:16):
whatever the, or takes 20% or whatever the number is.
So I would say that this new tech tech revolution is going to
look more like the iOS store than the Internet because the
rails, the infrastructure is owned by private companies.
(17:36):
But you're going to see, you know, the next Facebook, which
is an application layer on top of the iOS or on top of the on
top of the developer tools. You're going to see the next
trillion dollar companies come out of that application layer.
And by the way, open AI might bethat application layer as well,
(17:57):
right? It's got the hardcore large
language models and you know, and, and capabilities.
And then it is trying to turn itinto a range of applications
that lie on top. So there will be trillions of
dollars of value and, and, and companies that we hadn't heard
of now that will become household names in, in, in two
(18:17):
or three years. And that's why everyone's
getting so hyped, right? Cool.
All right. Well, let's let's move on and
let's talk about some of these Spanish banking giants because
that's is what they are. And I'm assuming particularly if
you're in the US, you've probably never even heard of
them. And also Britain's TSB, which I
didn't even know still existed, to be quite frank.
(18:38):
Yeah, yeah, I know We go from the kind of the heady highs of
Silicon Valley and and the new economy and and trillions of
dollars of value accrue. Yeah.
This is old school. This is old school, but by the
way, if you're going to work in this space, this is real life.
And even this is a very excitingform of real life in the world
(19:00):
of M&A and investment banking. And it's a really, really
interesting story because it involves A hostile takeover and
they're always really fun. So obviously not maybe for the
company that's being taken over.But this is the story of Banco
Sabadell, which I was reading earlier on, was founded in 1891
by 128 families in Catalonia, inSpain, with the aim of financing
(19:23):
the local industry. And interesting enough, they're
still massive in Catalonia. They're the biggest bank there
with a smaller presence outside.But anyway, Banco Sabadell, a
slightly subscale, I think it's the fourth largest bank, maybe
the 5th largest bank in Spain. It has announced that it is
considering spinning off its UK equity.
(19:48):
Well, ownership of TSBI, think the people in the US are you the
UK? Think about TSB as the adjunct
to Lloyds Lloyd TSB. But TSB is a standalone entity
actually now owned by Sabadell, bought it in 2017 I believe.
It's a pretty impressive company.
So they acquired it in 2015, apologies for about 1.7 billion.
(20:10):
They spent years turning the business around to the extent
the TSBTSB posted a pre tax profit of £290 million in 2024,
up 53,000,000 year on year. It's highest since 2013.
It's got 175 branches, High Street branches, old school
physical across the UK and it has more than 5 million
(20:34):
customers and 5000 staff. Now you know, a pretty decent
business. And by the way, I wouldn't, I
wouldn't like to speculate as towhat is harder.
One, creating the next $20 billion application layer to A
to a large language model. Or two turning a British High
(20:56):
Street bank from a loss making entity to one that generates pre
tax profits of £290 million. I'd probably rather the first
challenge than the second. It's so remarkably difficult to
take these very, very old institutions that have got a
fixed business model and try andmake them efficient.
(21:17):
But anyway, TSB potentially being spun off.
Now why? This is the most interesting
point. They are potentially being spun
off because Sabadell is facing ahostile acquisition, a hostile
takeover from the much larger BBVA who approached.
(21:38):
I think we covered this on the pod six months ago.
They approached Sabadell a year ago, tabling of $11.4 billion
billion euro offer not recommended by the board.
So it went hostile and BBVA are really up for this.
They've got it cleared by the European Commission because
obviously this is going to have regulatory and antitrust
(22:02):
considerations. They got it cleared by the
Spanish equivalent of the FTC. They haven't yet got it cleared
by the Spanish government who are worried about, you know,
monopoly power and, and, and thelack of choice from a, from a
competitive perspective. But if they can do that, they
will formally take that €11.4 billion offer to the
(22:26):
shareholders and say, look, we're Better Together.
You're going to own a slice of BBVA.
We're consolidating. The industry is consolidate.
Consolidating is all about scale.
It's all about synergies. It's all about, you know, a
defensive consolidation. That's the way that BBVA are
approaching this. Obviously, the board of
directors don't really want thisto happen because they didn't
(22:48):
recommend it. So what they're thinking of
doing is they're saying, all right, if we can spin off TSB,
right, raise 2 1/2 billion quid and then return that 2 1/2
billion quid to shareholders as a special dividend.
That automatically makes the company less valuable and makes
that €11.4 billion offer much more expensive.
(23:11):
Because suddenly you're buying something X the profit center,
which is TSB, and you've just given away that the proceeds of
that to existing shareholders. So it's kind of a roundabout
defensive strategy to say, look,BBVA, we don't want you to buy
us and we're willing to spin offsome some of our most profitable
(23:32):
assets in order for you not to get your hands on the rest of
it. So it's an absolutely
fascinating story. What's what's the phrase, is it
like cutting off your nose to spite your face sort of thing
where it feels a little bit likehere is a game of bluff.
So I'd be like, OK, this is a profitable unit that you have.
(23:53):
You want to stay independent? Go ahead then call my bluff.
Spin it off, let and and and let's see how that goes.
Well, what's super? Yeah, I totally agree.
What's super interesting about this is that in the context of
the takeover bid, any major asset sale from Sabadell would
require shareholder approval. So I've just got this kind of
(24:16):
this, this image in my mind of two letters.
I'm a Sabadell shareholder, 2 letters arriving on my, you
know, through my letterbox, one saying do I approve of the TSB
sale and one saying, do I approve of the BBVA takeover?
Because I'm going to have to tryand figure out which one.
(24:37):
You know, if I agree with the TSB sale, I will probably not
agree with the BBVA takeover. And how do I come to a decision
that benefits me most as a shareholder?
And just just as an aside, the BBVA offer, it's not massively
low balling. You know, it's still I think a
35% premium on the 30 day average share price before it
(24:59):
was announced, right? So it's not like BBVA, you know,
taking the piss. They're just the Sabanel ball.
Just don't want to be sold. It's as simple as that.
Is there is there any UK input into the dialogue that's
happening here? I know Sabadell said took on
(25:19):
TSB, but you said also there's 175 branches, there's lots
millions of customers and employees in the, you know, to
to the tune of several thousand.So do they have it?
Is there any UK government inputin this in terms of what
happens? Yeah, I think it's interesting
because it's not as if, it's notas if TSB is a kind of is a
(25:41):
national institution that has been independent for a very long
period of time. And this would be the first
foreign incursion into the British banking scene.
The fact that the most likely acquirer for TSB is probably
NatWest, which again you know, British probably probably will
(26:02):
be a good owner of TSB. Although I would say that with a
slight note of caution because there there will be towns up and
down the country that have a NatWest right next to a TSB
branch. And obviously the synergies shut
one of them down and become become both.
And that might, you know, that might result in a reduction of
(26:24):
staff and maybe even a reductionof choice on the High Street.
So yeah, the and the same will apply if Barclays buy them or if
Santander buys them or if HSBC buys them.
So it probably will get looked at.
There's there's very, very little reason why it wouldn't.
But would it get blocked by the UK?
Probably not. I'm conscious we have a lot of
(26:48):
US listeners. So can you explain to me like
who NatWest are and how NatWest how, where they sit in the
banking scene in terms of the composition of their business to
other banks like Barclays and HSBC and so on?
Yeah, You wouldn't have heard ofNat West because they don't
really have a strong investment bank presence, certainly like
Barclays and to a lesser extent HSBC.
(27:08):
They're also not a massively international bank.
When you think of. I think when you think of HSBC,
you think Asia, global bank, trade finance, lending, business
banking, that kind of stuff, right.
If you think of when you think of Barclays, you probably think
you know, trying to play with the big boys from an investment
bank perspective, trying to be the bridge between Europe and
(27:32):
and and the US. But when you think of NatWest,
you think much more about more traditional commercial corporate
lending, corporate relationship management, the kind of flow
products of keep that that are required to keep the lights on a
business and obviously a big retail presence as well.
I think it is now the largest retail bank in the UK.
(27:54):
Someone will probably correct meif I am wrong, but yeah, that's
why you wouldn't have heard of it.
But again, it's it's quite interesting.
If you're coming from a from AUSperspective, you've got
obviously the big bulge bracket universal banks that you'll see
everywhere. Then you've got the investment
banks, which you'll probably only see in certain major
(28:14):
financial hubs around the country.
And then you've got 10s of thousands of smaller banks,
right. Obviously, there's been great
consolidation, the likes of Wells Fargo being big
consolidators that you don't seeas much over on this side of the
pond. But you have all of these quote,
UN quote regional or local or High Street banks of which if
(28:36):
you were to, if you were to comeover to the UK, NatWest would
probably to be the biggest one, maybe the Wells Fargo.
I don't know if that's the rightanalogy, but something,
something like that. OK.
So if you to conclude then if you zoom out and put this deal
in context with the sector overall, what signals are you
getting about the wider trends in the UK banking sector and and
(28:58):
just generally because this includes Europe as well?
Yeah, I think, I think we've spoken about this before.
There is this general assumptionand we looked at it with the the
UniCredit deal over in Italy buying the German bank, Commerce
Bank. So there is this desire for
defensiveness in scale. And again, a bank is pretty,
(29:21):
it's a pretty simple business right?
In, in, in it's essence, the bigger the deposit based, the
bigger the opportunity to make money through lending and the
more defensible you are, the more, the more capital you have,
the more defensible you are. So scale is super, super
important. And you're seeing this in
Europe, obviously you're seeing this potentially with BBV and
(29:42):
Sabadell. And in the UK, weirdly enough,
the UK banking sector is not in again, anyone that's old enough
to remember 2000 and eight, 2009through to about 2015 and
beyond. UK banking sector is not in bad
shape after years of hardship, but there is still this move
towards consolidation. I think the likes of Metro Bank,
(30:06):
I think they were, I think they've drawn interest from
Poland St. Capital, don't really know much
about Poland St. Capital.
And again, Santander UK, spoken a lot about Santander in the
past, is rumored to be on that Wradar as well.
So is there a bit more consolidation to come to get
that scale of the deposit base and to get the synergies of not
(30:27):
having to have, you know, 2 HighStreet branches on every High
Street? Yeah, I think that's probably
the way it's going. You don't want to be too skinny
in terms of one or two or two orthree banks taking the market
because then the consumer loses choice.
But you certainly want to have some pretty robust institutions
that aren't going to wilt as soon as the next recession
(30:49):
comes. All right, on to our final
story. And yeah, interested about this
one because I think when I talk to and interact at least with a
lot of students, there tends to be like these career pathways
and they always tend to think ofthem as very defined.
It's like accountants and you goand work at one of the Big Four,
for example, or consulting, you go work at McKinsey or
(31:09):
Accenture, or you get an investment banking, you work at
Goldman's or Ms. But yeah, interested in this story to see
how in this case, the two latterones intersect, so to speak.
So what's what's happening here with Barclays?
Yeah. I mean, the headline here is
Barclays brings in the consultants to find efficiencies
in its investment bank. Barclays hiring McKinsey to help
(31:32):
simplify its investment bank andidentify hundreds of millions of
dollars in potential savings. When I left university, I think
I probably should have become a consultant.
So there's, there's something quite lovely about, you know,
being young, getting into like a, a, a big business, telling
(31:55):
them what to do and then buggering off again before you
can actually see whether what you said has worked.
I know the reason why I say thisas I remember very, very clearly
when I was at HSBC working on a big strategy and, and efficiency
project much like this one that was announced by Barclays.
(32:16):
And I was upstairs as it were, you know, working on this
project with, with some of the some of the senior people.
And we had BCG Boston Consultancy Group to help run
this analysis and help do this big strategic change project.
And they were with me in the office for a few months.
Guy that I sat next to, bearing in mind I was only 2526.
(32:37):
Guy that sat, I sat next to justout of universities 21.
He's furiously, furiously smart.Shout out to Dominic if you're,
if you're listening, furiously smart.
But basically he was just telling us that we need to fire
20,000 people in our business. You know, he'd run the numbers,
he'd done the models, he'd done the analysis.
He's extremely confident that this was what we should do if we
(33:01):
were to achieve the outcomes that we wanted to achieve within
that part of the. Can I just ask though, on that
point, like someone of that age might have the, the technical
capability to run the models, dothe numbers, but you and I know
that the success of a, a change strategy, a transition that you
know, there are people involved and there's people who stay
(33:23):
despite those people who are lost.
And so, and if you're going to pivot strategy as well as reduce
the workforce, so how, how that sort of person, I mean, how is
that? How do they acquire those skills
in order to like put the wrapperaround the what the model is
saying? Yeah, there's a, there's a
(33:46):
couple of, there's a couple of answers to that question.
The first is I think that he was, he was remarkably good.
The, the, the second is the way that a consultancy project or
engagement has historically worked is you've got a, a, a
very senior partner that does a lot of the initial negotiations
in the pitch and is there periodically to check in on the
(34:10):
project team that is doing the thing right.
And it might actually be that partner that is doing the big
summary presentation and recommendations at the end of
the period. So that you know, that tends to
be what happens. However, there are also
obviously plenty of instances where you've got you got get the
(34:30):
guys from BCG and they do a piece of work.
Let's say it's a three month project to come up with a bunch
of implementation recommendations through all of
their using all of their all of the tools in the consulting
toolkit. But then they are asked to be
kept on to help actually implement.
So This is why you might have some friends as as as kind of
(34:54):
people fresh out of university here.
You might have friends that havebeen working on one particular
their work. They work for consultants.
And in your mind, you think, oh,you know, a month project here,
a couple of months here, come upwith A50 slide pitched, you
know, presentation off you jump jog to the next exciting thing.
You'll have some consultants that are basically just
(35:15):
employees of a company, right? You know, you'll have some
consultants that have worked forthe same company or the same
government or the same civil service branch for the last
three years because effectively you are a highly skilled
resource that doesn't have to befully employed.
And as we mentioned at the top of this show, you, you know, you
(35:37):
can be the one where the blame is laid, right?
So, oh God, the consultants camein.
You know, it was, it wasn't up to us firing 300 people.
You know, the consultants came in and they, you know, they're
the ones that you should get angry about of that is that is a
very kind of simplistic view, but it's it's definitely
something that senior members say.
So let's. Let's go back then to to
(35:59):
Barclays. I know they've they are, as you
said, they're going through thisdramatic shift at the moment.
It's been in play for for a while.
But can you just go over that again?
What are their goals? What they trying to get out of
this kind of slimming down exercise?
Yeah. So this is the CS, the CEOCS,
(36:23):
Venk Venk. I knew that would test you even
with your prowess for these sorts of things.
I'm. Absolutely, I'm rubbish at
names. Just say CS.
Sorry, CS Venkata Krishnan CS. There you go.
CS So the CEO, he's been under pressure to boost returns across
the bank and the investment bankin particular consumes a lot of
(36:45):
capital, obviously, which is thethe fuel for any bank.
And a part of his strategy whichhe laid out in 2024 was to find
£2 billion worth of efficiency savings across the bank by 2026.
And in fact, you know, this is the latest stage, I think
earlier on this year, they cut 200 jobs across investment
(37:06):
banking, global markets and research.
This time last year, they cut 200 jobs across investment
banking, global markets and research.
And this project with McKinsey is all about trying to find
efficiencies, duplications, potential savings, automation
across the front office, across finance, risk, technology,
(37:30):
onboarding, know your customer credit, all of this stuff,
right? You know, is there inefficiency
there? And obviously whenever you hear
the word automation, you probably think to yourself, all
right, heads are going to roll. Bring in the.
That's what I say. The strategy here then, because
I know that they've been on the ticket of some pretty big deals,
(37:53):
Barclays, perhaps there's there's a few you can remind me
of. But is there that that strategy
here then like with where they want to focus and given the
general nature of the ebb and flows, just to go back, I know
we talk about it quite a lot of what makes a bank like JP Morgan
such a dominant banking giant because of its multiple
(38:13):
tentacles. So what was so Barclays here
seems like they're doing some some great guns on some big M&A
deals and then they're dropping 200 people within the team.
Well, yeah, it's a very interesting point.
So yeah, Barclays is performing pretty well.
It's it's up 20% this year shareprice, which is more than all of
(38:38):
its peers across the UK and and the US as well.
So it's having a great start to the year.
It's ranked 6th in terms of yearto date investment bank league
table with a particular boost inits M and A practice.
I think it was on the Wiz acquisition that we spoke about
(39:00):
the $32 billion Alphabet acquisition of Wiz and then
Sunoco's acquisition of Parklandfor 9 billion.
So it's been on some pretty hefty tickets that have shot it
up the ranking. But this is interesting, right?
And this is unfortunately a trend that we are going to see
play out over the next 5 to 10 years, which is revenues going
(39:21):
up, but personnel is going down because people are able to do
more with less. And to an extent, AI has not yet
hit investment banks in the sameway.
Sorry, I've mentioned that. There you go.
So just as an aside, I'm going to let Ant pause whilst I
(39:41):
mentioned AI for I think probably the 65th time in this
episode. And suddenly, the fire.
People can't see there's. A button in the office.
And every time you say it more than five times like a crank,
and I hit the button and that was the button going on, not the
fire at all. Yeah, exactly the the AI button.
(40:01):
But I think it is it's coming inslowly, but it's it's an
important trend to watch out foras young people that are trying
to figure out, all right, A, should I be breaking into this
industry? B If I'm really into it, how do
I break into this industry and then see what are the kind of
skills that are going to be resilient?
(40:24):
In this industry over the next 10/15/20 years, we can answer
and amplify some of those questions.
I think we can answer all of them, yeah.
New technology thing continue coming, businesses are going to
continue facing challenges. They're going to want to operate
lean and double down, lean into those technological advantages
and tools and application layer.Feels like consultants.
(40:46):
Feels like consultancy is going to be a pretty good gig.
Well, this, this is it. Get that, you know, bring the
consultants in. So whenever I, you know, I spend
quite a lot of time speaking to students about this.
And, and again, my advice is find a job where you are doing
lots of different things and engaging with lots of different
(41:08):
stakeholders at different levels, having conversations
about different elements during the course of a single day or
over the course of a week. And you're probably quite
defensible because you're learning transferable skills.
You're learning nuance, subtlety, negotiation, how to
convince people, how to structure your analytical kind
of hierarchies and things like that.
(41:30):
And actually, as much as I hate to say it, consulting is a very
is it definitely gives you thoseskills.
So maybe I missed out on a career.
Come on. It's not too late.
Not too late. If McKinsey, you're listening to
this, I'm in. All right, cool.
Good stuff. We'll wrap it up there.
As ever, any questions at all, do let us know.
And don't forget to subscribe and follow the show.
(41:53):
Turn on notifications, weekly content always coming out and
keep vibing, Stephen. Keep vibing, Ann.
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