Proactive Investors - AJ Bell (LON:AJBA) and Hargreaves Lansdown (LON:HRGV) stand to lose a chunk of their profits following the warning from the FCA over the interest paid on customers’ “idle cash”, according to US bank Citi.
In a “dear CEO” letter to the investment platforms, the FCA spelt out its expectations for firms' platform cash revenues under Consumer Duty legislation, Citi noted.
“We believe that that language in the release indicates that firms may need to significantly cut cash margins.”
Citi said that the practice of “double dipping” on platform fees is not how the major platforms charge, but rather they make their money on net interest income or NII.
“We estimate that c90% of AJ Bell's profits come from NII versus c65% for Hargreaves Lansdown.
Both earn around 200bp margin (2%) on their cash balances, with each 20bp reduction respectively implying 9% and 7% downside to consensus EPS.
“We expect meaningful consensus EPS cuts “ for both AJ Bell and Hargreaves Lansdown, Citi concluded.