Klarna seeks to ditch US '4-point repayment' loans

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Klarna is seeking buyers for a portfolio of US “four-payment” installment loans to free up capital for growth ahead of a public listing in New York.

Sweden's Buy Now Pay Later group is in talks to sell its loan book, according to people familiar with the matter. Banks including Citigroup, Royal Bank of Canada, Nordea and Societe Generale are involved in discussions for the sale, three people familiar with the matter said.

The deal will help free up funds for loan growth needed to meet potential IPO investors ahead of one of the year's most anticipated stock market debuts.

It comes after Klarna sold its UK “buy now, pay later” portfolio to investment fund Elliott Management in a similar deal last year to free up capital for new loans worth £30bn.

Klarna’s ‘Pay in 4’ option allows consumers to split their purchases at the retailer’s checkout into four interest-free payments, paid every two weeks.

The model is similar to the “Pay in 3” credit product offered by Klarna in the UK, with payments being made every 30 days.

But one of the people said its buy now, pay later U.S. loans have not yet been established and could see higher default rates.

A study released Monday by the U.S. Consumer Financial Protection Bureau found that nearly two-thirds of buy now, pay later loans in 2022 went to borrowers with lower credit scores, and most borrowers applied for multiple applications at some time. A loan. point of the year.

Klarna and other consumer lending fintech companies such as SoFi and Affirm have partnered with or sold loan books to private credit groups in recent months.

The companies took advantage of demand from investors, including insurance companies, to take loans off their balance sheets, giving them new ammunition to lend.

Investment groups including KKR, Carlyle, Sixth Street and Fortress have all announced purchases of large loan portfolios in search of debt with higher returns.

In some cases, private credit companies have agreed to provide capital before the loans are underwritten, providing an incentive for groups like Upstart Holdings to make loans in the coming years.

Klarna, a bank regulated in Sweden, has also completed significant risk transfers to reduce the risk of potential loan losses and increase lending in 2022.

Klarna, Citigroup, Royal Bank of Canada and Societe Generale declined to comment. Nordea did not respond to a request for comment.

Under Sebastian Siemiatkowski, the Swedish group remained profitable until 2019, when it decided to accept some losses to drive international growth. Since then, the company has begun implementing expansion plans in the United States and has filed for an initial public offering in the United States.

Klarna is expected to list in the first half of this year with a target valuation of about $15 billion, one of the most high-profile listings since equity capital markets stalled in 2024.

The bank was valued at $46 billion in a 2021 funding round, briefly becoming Europe's most valuable startup. But a year later, its valuation plummeted to $6.7 billion as rising interest rates eroded investor confidence in the industry.

The fintech company reported net profit of SEK 216 million ($19 million) for the three months to the end of September. However, the company suffered an overall loss in the first nine months of this year, with a net loss of SEK 116 million.

Additional reporting by Simon Foy in London