CBA’s $2.5bn paper profit on Klarna

Commonwealth Bank may not have participated in Klarna’s latest equity funding round, but that hasn’t stopped the bank’s stake in the payments group ballooning six-fold to about $3bn.

Klarna CEO Sebastian Siemiatkowski. Photographer: Adam Yip

Commonwealth Bank may not have participated in Klarna’s latest equity funding round, but that hasn’t stopped the bank’s stake in the payments group ballooning six-fold to about $3bn.

Sweden’s Klarna — a buy now pay later operator, bank and shopping service — on Thursday ruled off a $US639m ($822.5m) capital raising, which ascribed it a bumper valuation of $US45.6bn. That sees Klarna’s valuation nearing that of ANZ Bank, which is quite a feat for a company that began life in 2005.

The funding round to support international expansion was led by SoftBank’s Vision Fund 2, with additional participation from existing investors including family-office firm Adit Ventures, Honeycomb Asset Management and growth equity firm WestCap Group.

CBA made an initial investment in Klarna in 2019 as it sought a toehold in the burgeoning buy now pay later space, and has since topped up its investment to about $500m, or 5 per cent of Klarna. The paper value of that holding is now approaching $3bn.

A CBA spokesman declined to comment on the Klarna holding on Friday.

The bank’s partnership with Klarna has also seen it become an equal partner in the Swedish group’s Australian and New Zealand rollouts. But Klarna recently executed a clean-out of its Australian leadership given the group has found growth in this market more challenging than expected, given the dominance of players like Afterpay.

CBA has also kicked off its own direct buy now pay later product, and fees to retailers and other merchants are akin to credit card rates hence significantly lower than those in the instalments space.

In January, CBA chief executive Matt Comyn was upbeat on the Klarna stake and partnership but wouldn’t comment on prospects for the Swedish group to seek a sharemarket listing or CBA’s intention to participate.

At the time he said the value of CBA’s Klarna holding had increased “very significantly”.

“We see the partnership as being very long term.”

That month, Klarna rival Affirm Holdings became publicly listed and saw its stock soar on debut from a $US49 initial public offering price. Affirm’s shares rallied as high as $US146.90 before getting caught up in negative sentiment and were recently changing hands at $US63.68.

Hype around that IPO had pundits betting Klarna would soon plot its own listing.

Klarna’s other investors include Sequoia Capital, SilverLake, Permira, Bestseller Group, Ant Group, Singapore’s sovereign wealth fund GIC as well as funds and accounts managed by BlackRock and HMI.

But the threat of regulation of the buy now pay later sector looms large, and in Britain it was announced in February the industry would be regulated by the Financial Conduct Authority.

Sebastian Siemiatkowski, Klarna founder and CEO, used the fund raising announcement to take aim at “interest-and fee-laden revolving credit” products which he said were on the nose with consumers.

“Klarna's more transparent and convenient alternatives align with evolving global consumer preferences and drive worldwide growth. I’m very proud of the investors who are supporting Klarna’s ambition to challenge these outdated models,” he added.