Raphael Stevens

Goldman Sachs CEO David Solomon told CNBC’s Sara Eisen the New York-based firm will post impairments on loans and equity investments tied to commercial real estate in the second quarter.
“There’s no question that the real estate market, and in particular commercial real estate, has come under pressure,” Solomon said in the interview on CNBC’s “Squawk on the Street.”
On top of Goldman’s lending activities, it also took direct stakes in real estate that will also face markdowns, Solomon said.

CEO David Solomon, Goldman Sachs, during a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, Dec. 6, 2022.
Michael Nagle | Bloomberg | Getty Images

Goldman Sachs CEO David Solomon said Monday that his bank will disclose markdowns on commercial real estate holdings as the industry grapples with higher interest rates.
Solomon told CNBC’s Sara Eisen the New York-based firm will post impairments on loans and equity investments tied to commercial real estate in the second quarter. Financial firms recognize loan defaults and falling valuations as write-downs that affect quarterly results.

“There’s no question that the real estate market, and in particular commercial real estate, has come under pressure,” he said in an interview on CNBC’s “Squawk on the Street.” “You’ll see some impairments in the lending that would flow through our wholesale provision” this quarter.
After years of low interest rates and lofty valuations for office buildings, the industry is in the throes of a painful adjustment to higher borrowing costs and lower occupancy rates due to the shift to remote work. Some property owners have walked away from holdings rather than refinancing their loans. Defaults have just begun to show up in banks’ results. Goldman posted almost $400 million in first-quarter impairments on real estate loans, according to Solomon.
On top of Goldman’s lending activities, it also took direct stakes in real estate as it ramped up its alternative investments in the last decade, Solomon said.
“We think that we and others are marking down those investments given the environment this quarter and in the coming quarters,” Solomon said.
While the write-downs are “definitely a headwind” for the bank, they are “manageable” in the context of Goldman’s overall business, he said.

They may be less manageable for smaller banks, however. About two-thirds of the industry’s loans are originated by regional and midsize institutions, Solomon said.
“That’s just something that we’re going to have to work through,” he said. “There’ll probably be some bumps and some pain along the way for a number of participants.”
In the wide-ranging interview, Solomon said he was “surprised” by the resiliency of the U.S. economy, and he was seeing “green shoots” emerge after a period of subdued capital markets activities. More

UBS has completed the legal takeover of its former Swiss rival Credit Suisse.
The $3.2 billion deal was agreed in March amid worries about Credit Suisse losses would destabilize the banking system.
The enlarged UBS will have a balance sheet of $1.6 trillion and a workforce of 120,000.

UBS expects to complete its takeover of Credit Suisse “as early as June 12”, which will create a giant Swiss bank with a balance sheet of $1.6 trillion.
Fabrice Coffrini | Afp | Getty Images

Swiss bank UBS on Monday said that it formally completed the takeover of its rival Credit Suisse.
“Instead of competing, we’ll now unite as we embark on the next chapter of our joint journey,” UBS Group’s newly-returned CEO Sergio Ermotti said in a statement.

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In an open letter, the bank’s chiefs also said they would not compromise UBS’s “strong culture” or “conservative risk approach.” Risk management failures over a number of years played a key role in Credit Suisse’s eventual downfall.
Ermotti told CNBC’s “Squawk Box” in a Monday interview that he believed the combined bank — which he said was the world’s 21th largest — would “compete better, serve our clients better.”
“We are the only bank with this kind of magnitude and size and scope that is focused on wealth management,” Ermotti said.
“We need to make sure we don’t fall back into any bad habits or do things the wrong way. But in that sense we have a very clear view on how to manage a UBS-led integration,” he continued, as it seeks to “restore confidence.”
UBS Group will manage UBS and Credit Suisse as separate banks at least for the short term. Questions linger over the future of assets including Credit Suisse’s prized retail bank.

Following the acquisition, Credit Suisse and its American Depositary Shares will be delisted from the SIX Swiss Exchange and New York Stock Exchange, with shareholders receiving one UBS share for every 22.48 Credit Suisse shares held.
The enlarged UBS will have a balance sheet of $1.6 trillion and a workforce of 120,000. Ermotti previously warned the new group “won’t be able to create, short term, job opportunities for everybody. Synergies is part of the story.” The combined company will report its first consolidated results on August 31.
UBS said Monday it expected “Credit Suisse operating losses and significant restructuring charges” to be offset as it ditches risk-weighted assets, and forecast a common equity tier 1 capital ratio — a measurement of capital against assets — of around 14% for the rest of the year.

Top team shake-up

In an internal memo seen by CNBC, the bank announced that several senior Credit Suisse figures intend to leave the company, including Chief Financial Officer Dixit Joshi, who only took on the role in October, and Asia Pacific regional CEO Edwin Low.
Simon Grimwood, currently Credit Suisse’s global head of tax and finance change, will take over as Credit Suisse CFO. Grimwood has been managing integration planning since March, the bank said.
Former Credit Suisse Co-head of Markets Michael Ebert will become head of the Credit Suisse investment bank and head of Americas at UBS investment bank, while Jake Scrivens will replace Markus Diethelm as general counsel. Credit Suisse Global Head of Operations Isabelle Hennebelle joins the board in her existing role as head of operations.
Asked whether he was concerned about an exodus of talent, Ermotti told CNBC: “We are always sorry to see talented people leaving, in other cases people were anticipating probably the inevitable restructuring that we will need to go through and decided to go.”
He added that the bank had managed to attract external talent after the acquisition announcement.
Ermotti’s own return to the UBS top job was confirmed in March shortly after the takeover announcement to oversee the transition. He previously led the company from November 2011 to October 2020, managing the fallout from the 2008 financial crisis and a $2.3 billion loss stemming from a rogue trader in London. UBS Chair Colm Kelleher said he “transformed” the bank through cost cutting and implementing cultural changes.

Challenging environment

The $3.2 billion takeover was the tumultuous conclusion of a frantic weekend in March, when worries that severe losses at Credit Suisse would destabilize the banking system drew the key involvement of Swiss regulators.
Sweetening the deal, the Swiss government has agreed to cover losses of up to 9 billion Swiss francs ($10 billion) after UBS incurs the first 5 billion Swiss francs as part of the transaction, as the bank absorbs a portfolio that does not entirely “fit its business and risk profile.”
The takeover, which follows multiple scandals and years of share price decline at Credit Suisse, controversially wiped out the 16 billion Swiss francs ($17 billion) worth of assets of the bank’s AT1 bond holders.
Beat Wittmann, co-founder and partner at Porta Advisors, said the speed with which UBS had managed the takeover was positive for the bank.
Going forward will be “certainly a challenge … but UBS, due to the emergency operation and the collective failure of policymakers and of course of Credit Suisse, got over a weekend an extraordinarily advantageous deal,” Wittmann told CNBC’s “Squawk Box Europe”.
“There’s so much margin of safety in terms of price, in terms of credit lines, in terms of risk sharing with the government, that this is a great deal indeed.”
Wittmann said that UBS faces several key challenges, the first of which is the physical integration of the two banking juggernauts and merging of their operating models.
Citing a Financial Times report published over the weekend — which CNBC has not confirmed — that UBS had set “red lines” for Credit Suisse bankers including bans on new clients from high-risk countries and on launching new products without the approval of UBS managers, Wittmann said “that’s exactly what a bank should do in any case.”
Addressing the report, Ermotti told CNBC: “We have developed that ‘red line’, which I wouldn’t really call a ‘red line’, over the course of years. This is simply what I mentioned before, we are introducing our processes, our operating model, into Credit Suisse. It’s not meant to be discriminatory.”
As for further challenges, Wittman drew attention to an upcoming parliamentary inquiry into the Credit Suisse takeover and wider banking stability. Swiss elections could also lead to “populist demands,” he stressed, as jobs are cut and branches close around Switzerland. A final trial is the broader macro environment, Wittman said, given the current credit crunch and likely financial market volatility resulting from higher interest rates. More

Offices of Illumina, in San Diego, California.
Mike Blake | Reuters

Check out the companies making headlines in premarket trading.
Nasdaq — The exchange operator’s shares dropped 7.7% following the announcement of its deal to buy Adenza, the software firm owned by Thoma Bravo. The deal, valued at around $10.5 billion, would be Nasdaq’s largest acquisition as the company sharpens its focus on financial technology and attempts to diversify.

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Illumina — The biotech stock rose 2% in premarket trading after Illumina announced a CEO transition plan on Sunday. CEO Francis deSouza resigned, effective immediately, but will stay on as an advisor through July 31. The move follows pressure from activist investor Carl Icahn.
Nio — Shares popped more than 4% after the Chinese electric car maker said it was cutting prices for its vehicles and ending free battery swaps for new buyers. Last week, Nio also said it was delaying its capital expenditure projects. Nomura assumed coverage of Nio with a neutral rating on Sunday, after previously rating it a buy.
SentinelOne — Shares rose 5.2% following an upgrade to overweight from equal weight by Morgan Stanley, which said the market hasn’t correctly priced the stock’s inherent asset value. The cybersecurity stock was hit with a salvo of downgrades after it reported weaker-than-expected first-quarter revenue and disappointing current-quarter and full-year guidance on the metric earlier in June.
Bill.com — Shares shed 4.8% in the premarket after Morgan Stanley downgraded the expense management platform to equal weight from overweight. The firm said Bill.com has limitations to expansion and could see increased competition.
Oracle — The IT stock added 4.7% in Monday’s premarket as investors awaited earnings for the fiscal fourth quarter expected after the bell. Wolfe Research upgraded the stock to outperform from peer perform over the weekend, while Evercore ISI said on Friday that it anticipated a strong quarterly report and positive commentary around the cloud business. Evercore ISI, Barclays and JPMorgan all raised their respective price targets for the stock in recent days.

Carnival — The cruise stock popped 5.5% following an upgrade from JPMorgan. The Wall Street firm upgraded shares to overweight, citing continued demand momentum in the cruise industry.
— CNBC’s Jesse Pound, Samantha Subin and Michelle Fox contributed reporting. More

HSBC unveiled a new HSBC Innovation Banking unit Monday, as it seeks to push into the technology sector following its eleventh-hour rescue of the U.K. subsidiary of failed SVB.
Launched at the London Tech Week, the division will bring together SVB UK and freshly formed teams in the U.S., Israel and Hong Kong as it focuses on tech and life science enterprises.
The unit represents HSBC’s “globally-connected, specialized banking proposition to support a broad range of innovation businesses and their investors,” the bank said Monday.

HSBC UK CEO tells CNBC how the bank bought Silicon Valley Bank’s UK unit.
Nurphoto | Nurphoto | Getty Images

U.K. banking titan HSBC unveiled a new HSBC Innovation Banking unit Monday, as it seeks to push into the technology sector following its eleventh-hour rescue of the U.K. subsidiary of failed Silicon Valley Bank (SVB) in March.
HSBC acquired the London-based SVB unit for £1 after its parent company suffered a run on its assets fueled by customer fears over the bank’s solvency. SVB was one of several U.S. and European lenders that met their downfall earlier this year as broader turmoil rattled the global banking sector.

The U.K. government and Bank of England facilitated the purchase in a bid to protect deposits, as Britain separately struggles to retain its position as an international tech capital.
Some have questioned whether traditional financial institution HSBC is well placed to take over the legacy of SVB and finance tech-focused startups and small businesses.
The criticism was shot down last week by HSBC UK CEO Ian Stuart, who told CNBC’s Arjun Kharpal that the bank would take its activity “from seed funding all the way through to IPO, customers will never have to go outside of that network to meet their funding requirements.”

HSBC said Monday that its Innovation Banking unit, launched at London Tech Week, will bring together SVB UK and freshly formed teams in the U.S., Israel and Hong Kong as it focuses on tech and life science enterprises.
“The UK’s world-leading technology and life sciences sectors are central to growing the UK economy and boosting global exports,” HSBC Group Chief Executive Noel Quinn said in a Monday statement.

“HSBC now has a world-class team focused on innovation companies, their founders and their investors. We will protect this specialisms and take it to the next level.”
British Prime Minister Rishi Sunak said that the new HSBC division will assist innovative businesses and create additional jobs, “supporting my priority to grow the UK economy and cement our position as a science and tech superpower.” More

Marketing revenue rose in the first three months of 2023 for several Chinese internet giants — but not Alibaba, the largest of them all by dollar value. That’s on a year-on-year basis.
Rather than 2023, “the general consensus in the industry is that 2024 is going to be the year of growth and rebound,” said Ashley Dudarenok, founder of ChoZan, a China marketing consultancy.
Among major U.S.-listed Chinese internet platforms, Pinduoduo saw the biggest year-on-year increase in revenue from ad sales in the first quarter. The company operates a group-buying app known for bargain discounts.

People dine out at a restaurant in Beijing on May 26, 2023.
Jade Gao | Afp | Getty Images

BEIJING — Businesses in China are spending cautiously on advertising this year as local consumption isn’t expected to bounce back for a while yet.
Marketing revenue rose in the first three months of 2023 for several Chinese internet giants — but not Alibaba, the largest of them all by dollar value. That’s on a year-on-year basis.

Heading into the 618 shopping festival this month, brands remain cautious.
“For 618, generally of course brands will be trying, but compared to before it’s a bit more tired,” said Ashley Dudarenok, founder of ChoZan, a China marketing consultancy.
“We know it takes exactly the same amount of money to bring the customer into your shop today versus 2021, but the customer is going to spend about 30% less in your shop,” she said.

In the first quarter, the median disposable income of urban residents in China was officially 12,175 Chinese yuan ($1,739), up 3.9% from a year ago. Education, health care and travel were the top three categories for planned spending, a central bank survey found.
“The general consensus in the industry is that 2024 is going to be the year of growth and rebound,” Dudarenok said. “2023, let’s just get out of the downturn, stay connected with the platforms, with the customer,” she said.

Dudarenok noted that ad agencies are also spending just to experiment with search engines. Baidu and Microsoft’s Bing have both been working with new generative artificial intelligence technology.

A focus on affordability

Sluggish economic growth and uncertainty about future income have weighed on Chinese consumer spending since the Covid-19 pandemic. In the absence of national stimulus checks, retail sales have rebounded moderately in the first four months of this year. Figures for May are due out June 15.
This year, consumers in China are looking to buy better quality products — and get more value for their money, said Dave Xie, principal at consultancy Oliver Wyman focusing on China’s retail sector.
He pointed out that by promoting product functionality and affordability around the 618 shopping festival, domestic cosmetics brands have expanded their market share versus international brands.
When asked Tuesday about the outlook for the Chinese consumer this year, a JD Retail representative said growth may be bumpy.
Companies are also seeing different results by platform, as online shopping trends shift.

Brands are keen to spend more on ByteDance’s Douyin, likely taking away from ad spending on Alibaba’s Taobao and Tmall e-commerce platforms, Oliver Wyman’s Xie said.
ByteDance isn’t publicly listed and doesn’t frequently disclose detailed numbers.
Among major U.S.-listed Chinese internet platforms, Pinduoduo saw the biggest year-on-year increase in revenue from ad sales in the first quarter. The company operates a group-buying app known for bargain discounts. That growth is likely a sign that locals aren’t willing to shell out.
“Lots of people around me are using Pinduoduo,” said Sun Hao, partner at Beijing-based Goodidea Growth Network, a media group whose website lists Nestle, P&G and Tmall among its clients.
He also noted “significant” growth for the Little Red Book, or Xiaohongshu, app since its users tend to be mothers and white-collar workers in cities with spending power. The app isn’t publicly traded.
However, Sun said that many brands didn’t meet their performance targets in the first quarter and his sense was that overall ad budgets were contracting, especially for traditional media.
And for brands spending on Douyin, he said the return on investment per ad dollar was getting lower.

Offline and overseas

The end of China’s strict Covid controls and the pandemic itself have undoubtedly boosted travel and in-person events. Travel booking site Trip.com said it doubled its spending on sales and marketing in the first quarter to 1.8 billion yuan ($256 million).
For iQiyi, nicknamed the “Netflix” of China, offline marketing has become more important since China’s reopening due to the recovery in foot traffic, according to branding director Kelly Shi. The company has used billboards and interactive experiences to promote its content.
IQiyi’s selling, general and administrative expenses surged by 48% in the first quarter from a year ago to 1.1 billion yuan “primarily due to higher marketing spending,” a release said.

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Slower growth in China’s domestic market is pushing more local consumer companies to look overseas — sometimes by acquiring or merging with other brands.
Largely thanks to that strategy, China-based consumer product companies saw the fastest growth among Asia-Pacific peers in international revenue over the past decade, according to a Bain & Company report released in late May.
More China overseas deal activity is expected in the next six to 18 months, said Philip Leung, Shanghai-based leader of Bain’s Asia-Pacific M&A practice.
For many China-based companies, he said the strategy is now to acquire brands so they can benefit from both the overseas market and in China. More

The CSI 300 index, which measures the largest companies listed in Shanghai and Shenzhen, erased all of its gains seen earlier in the year, while Japanese equities are in a bull market.
“Amid China weakness, investors have looked elsewhere in the region for opportunities,” Goldman Sachs Chief Asia-Pacific Economist Andrew Tilton said.
Foreign investors have undoubtedly been key in driving the Japanese market, maintaining the highest levels the Nikkei has seen since 1990.

Pedestrians in front of a pawn shop during Golden Week at night in Macau, China, on Sunday, April 30, 2023.
Bloomberg | Bloomberg | Getty Images

China’s lackluster economic recovery since emerging from strict “zero-Covid” lockdowns has caused weaker sentiment toward the country, prompting investors to look for alternative options — like its near neighbors.
In particular, stock markets in Japan, South Korea and India have all been major beneficiaries of the disappointment from China’s reopening, highlighted by softer-than-expected data from the world’s second-largest economy.

“Amid China weakness, investors have looked elsewhere in the region for opportunities,” Goldman Sachs Chief Asia-Pacific Economist Andrew Tilton said in a Friday research note, adding that Japan “is in the limelight” while India has “also returned to focus in recent months.”

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The Nikkei 225 is in bull market territory, up by more than 23% year-to-date thanks to garnered interest from foreign investors, including Berkshire Hathaway’s Warren Buffett.
India’s Nifty 50 index has rallied nearly 7% so far this quarter and pared all of its losses from its March low, while South Korea’s Kospi index has risen 18% year-to-date.

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That shows a stark contrast to a sell-off seen in the Chinese stock market. The CSI 300 index, which measures the largest companies listed in Shanghai and Shenzhen, has fallen 5.29% quarter-to-date and has erased all of its gains seen earlier in the year, when stocks rallied on reopening momentum.
The Hang Seng index also touched bear market territory last month and is down nearly 2% year-to-date, Refinitiv data shows.

“Investor sentiment on China has weakened further, and in our view is around rock-bottom levels we’ve only seen a few times over the past decade,” Goldman Sachs’ Tilton said in the note.

Higher targets for Japan

Foreign investors have undoubtedly been key in driving the Japanese market, maintaining the highest levels the Nikkei has seen since 1990.
The latest data from Japan’s Ministry of Finance shows overseas investors continue to build on their Japanese equity positions as domestic investors remain the net buyers of foreign bonds.
Foreign investors bought a net 342.18 billion Japanese yen ($2.45 billion) of stocks in the week ending June 2, according to a Reuters calculation, totaling roughly 6.65 trillion yen of net purchases of Japanese shares this year. During the same period last year, foreign investors had sold a net 1.73 trillion yen approximately.

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Wall Street banks including Morgan Stanley and Societe Generale are among those that are optimistic on Japanese stocks, holding “overweight” positions.
In its global mid-year outlook, Morgan Stanley predicted Japanese stocks will outperform their global peers: “Japan is our most preferred region, with improving ROE [Return-on-Equity] and a superior EPS [earnings per share] outlook,” Chief Investment Officer Mike Wilson said.

The firm raised its estimates for the Topix index to rise 18% by June 2024 from its previous target of a 13% gain.
“Japan [is] looking even more attractive, while we hold a preference for EM [emerging markets] versus the U.S. and EU,” Morgan Stanley strategists said in a note, adding that “accelerating regional growth and solid domestic GDP should support earnings” for Japanese companies.

Upside for Korea tech stocks

South Korea is another market closely watched as concerns over China’s recovery linger.
Korean technology stocks, which make up roughly half of the Kospi 200 index, have been the main driver behind UBS Global Wealth Management’s “most preferred” status on the sector and its market.
Noting that the bank expects U.S. interest rates to peak soon followed by a drop in the U.S. dollar, UBS wrote in its monthly outlook: “We remain most preferred on Asia semiconductors over the next 3-6 months and Korea, which we’ve previously highlighted as a winner in such an environment.”
South Korean technology stocks’ low price-to-book ratio makes it “an attractive alternative to more expensive tech segments,” UBS said, noting that there is still “significant value” seen in China’s e-commerce stocks, which have plunged 20% year-to-date. Price-to-book ratio is an important metric used by traders to gauge the value of a stock.

“For China, questions continue over the durability of its economic recovery. This, and ongoing geopolitical concerns, have weighed on the market,” UBS strategists said in the report.
Goldman Sachs is also confident in the South Korean market, expecting more overseas investment ahead.
“We are relatively bullish on Korea both because we are less concerned about broader domestic spillovers from housing sector weakness and more optimistic about foreign portfolio inflows,” Goldman’s Tilton said.
The Bank of Korea, meanwhile, is expected to be one of the first central banks to deliver a monetary policy pivot, despite its governor Rhee Chang-yong telling CNBC that it’s still “premature” to be discussing a rate cut.
Banks including Citi and Nomura are expecting to see a rate cut of 25 basis points as early as the third quarter of this year.

An investor looks at screens showing stock market movements at a securities company in Fuyang in China’s eastern Anhui province on May 29, 2023. (Photo by AFP) / China OUT (Photo by STR/AFP via Getty Images)
Str | Afp | Getty Images

South Korea’s money market fund (MMF) logged a record high at the end of May, data from Korea Financial Investment Association showed. The total MMF assets under management stood at 172.7 trillion South Korean won ($134 billion), or a 22% rise since the end of September last year.
A money market fund is a type of fund that invests in highly liquid, near-term instruments, including cash, and is seen as a place of safety amid a volatile market.
Fitch Ratings Senior Analyst Chloe Andrieu said in a June 8 note: “The increase was driven by institutional investors pivoting assets towards high-quality investments, such as MMFs,” adding that rising interest rates across the world have also contributed to the shift.
In contrast, newly launched funds in China marked the smallest holdings since 2019 for the first five months of this year, having raised a total of 432.1 billion Chinese yuan ($61 billion), according to data from local consultancy Z-Ben Advisors.

India’s ‘perfect macro mix’

There is also growing interest in investing in India, according to Goldman Sachs.
“Clients increasingly ask about India’s potential to benefit from greater investment amid supply chain reconfiguration,” Tilton said. The firm said it is “generally positive in the medium term,” citing India’s continued monetary policies, credit conditions, and its prospects for attracting foreign direct investment.

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HSBC’s chief economist for India and Indonesia, Pranjul Bhandari, said ahead of the Indian central bank’s June meeting that keeping rates unchanged would be “allowing the perfect macro mix to continue,” pointing to raised growth and lowered inflation forecasts.
The firm also raised India’s full-year gross domestic forecast for 2024 from 5.5% to 5.8% and expects the RBI to deliver two rate cuts in the first quarters of 2024, bringing its repo rate to 6% by mid-2024.
“India’s economy is much improved from a year ago,” Bhandari said. “GDP growth momentum has been steady as per the latest high frequency data, with the informal sector picking up the slack as the formal sector growth softens,” she said.

The Reserve Bank of India held its benchmark repo rate steady at 6.50% last week for the second consecutive time — in line with market expectations.
The Organization for Economic Cooperation and Development also expects India’s economic growth to outpace that of China this year and next, it said in its latest global outlook report.
“Growth has surprised on the upside recently, and we believe an improving informal sector is at the heart of it,” Bhandari said. “Rising state government spending, and some cushion in the central government budget to support social welfare schemes, is likely to remain supportive of informal sector demand.” More

At Money 20/20 in Amsterdam this week, business-facing fintechs like Airwallex, Payoneer, and ClearBank were all the rage, while consumer apps such as Revolut were nowhere to be found.
The area that drew the most hype from Money 20/20 attendees was artificial intelligence, with fintech and banking leaders looking to harness the technology’s potential while assessing the risks.
Several fintech executives CNBC interviewed spoke of how they’re not interested in launching products tailored to crypto as the demand from their customers isn’t there.

Fintech executives descend on Amsterdam for the annual Money2020 conference.
MacKenzie Sigalos

AMSTERDAM, Netherlands — At last year’s Money 20/20 — Europe’s marquee event for the financial technology industry — investors and industry insiders were abuzz with talk about embedded finance, open banking, and banking-as-a-service.
As nebulous as these terms may be, they reflected a very real push from tech startups, including the biggest names in the business such as Stripe and Starling Bank, to allow businesses of all stripes to develop their own financial services, or integrate other firms’ products into their platforms.

This year, with fintechs and their mainly venture capital and private-equity backers reeling from a dire slump in technology valuations and softer consumer spending, the narrative around what’s “hot” in fintech hasn’t changed an awful lot.
Investors still love companies offering services to enterprises rather than consumers. In some cases, they’ve been willing to write checks for firms at valuations unchanged from their last funding round. But there are a few key differences — not least the thing of curiosity that is generative artificial intelligence.
So what’s hot in fintech right now? And what’s not? CNBC spoke to some of the top industry insiders at Money 20/20 in Amsterdam. Here’s what they had to say.

What’s hot?

Looking around Money 20/20 this week, it was easy to see a clear trend going on. Business-facing or business-to-business companies like Airwallex, Payoneer, and ClearBank, dominated the show floor, while consumer apps such as Revolut, Starling, and N26 were nowhere to be found.

“I think many fintechs have pivoted to enterprise sales having found consumer hard to make sufficient unit economics — plus it’s pretty expensive to get a stand and attend M2020 so you need to be selling to other attendees to justify the outlay,” Richard Davies, CEO of U.K. startup lender Allica Bank, told CNBC.

“B2B is definitely in good shape — both SME and enterprise SaaS [software-as-a-service] — providing you can demonstrate your products and services, have proven customer demand, and good unit economics. Embedded finance certainly is part of this and has a long way to run as it is in its infancy in most cases,” Davies said.
B2B fintechs are startups that develop digital financial products tailored to businesses. SaaS is software that tech firms sell to their customers as a subscription. Embedded finance refers to the idea of third-party financial services like bank accounts, brokerage accounts and insurance policies being integrated into other businesses’ platforms.
Niklas Guske, who runs operations at Taktile — a fintech start-up focused on streamlining underwriting decisions for enterprise clients — describes the sector as being in the middle of a renaissance for B2B payments and financing.
“There is a huge opportunity to take lessons from B2C fintechs to uplevel the B2B user experience and deliver far better solutions for customers,” said Guske. “This is particularly true in SME finance, which is traditionally underserved because it has historically been difficult to accurately assess the performance of younger or smaller companies.”
One area fintech companies are getting excited by is an improvement to online checkout tools. Payments technology company Stripe, for instance, says a newer version of its checkout surfaces has helped customers increase revenue by 10.5%.
“That is kind of incredible,” David Singleton, chief technology officer of Stripe, told CNBC. “There are not a lot of things you can do in a business that increase your revenue by 10%.”

Meanwhile, companies tightening their belts at the event is also a theme.
One employee of a major firm that usually attends the event said they have cut down on the number of people they have sent to Money 20/20 and have not even bought a stand. The employee was not authorized to speak to the media.
Indeed, as companies look to scale as they cut back on spending, many say a key priority is adequately managing risk.
“When funds were readily available, many fintechs could subsidize poor risk assessments with investor money,” Guske said of the sector, adding that in today’s climate, fintechs are only profitable if they can identify and secure the right customers.
“This is another moment where the proliferation of new data sources and the adoption of sophisticated risk modeling enables fintechs to better target their ideal customers better than ever before,” said Guske, who raised more than $24 million from the likes of Y Combinator and Tiger Global.

Generative AI

The main area that drew the most hype from Money 20/20 attendees, however, was artificial intelligence.
That’s as ChatGPT, the popular generative AI software from OpenAI which produces human-like responses to user queries, dazzled fintech and banking leaders looking to understand its potential.
In a closed-door session on the application of fintech in AI Wednesday, one startup boss pitched how they’re using the technology to be more creative in communications with their customers by incorporating memes into the chat function and allowing its chatbot, Cleo, to “roast” users about poor spending decisions.
Callan Carvey, global head of operations at Cleo, said the firm’s AI connects to a customer’s bank account to get a better understanding of their financial behavior.
“It powers our transaction understanding and that deeply personalized financial advice,” Carvey said during her talk. “It also allows us to leverage AI and have predictive measures to help you avoid future financial mistakes,” such as avoiding punchy bank fees you could otherwise avoid.

Teo Blidarus, CEO and co-founder of financial infrastructure firm FintechOS, said generative AI has been a boon to platforms like his, where companies can build their own financial services with little technical experience.
“AI, and particularly generative AI, it’s a big enabler for fintech enablement infrastructure, because if you’re looking at what are the barriers that low code, no code on one side and generative AI on the other are trying to solve if the complexity of the overall infrastructure,” he told CNBC.
“A job that typically would take around one or two weeks can now be completed in 30 minutes, right. Granted, you still need to polish it a little bit, but fundamentally I think it allows you know to spend your time on more productive stuff — creative stuff, rather than integration work.”

As businesses hyper-focus on how they can do more with less, both tech-forward and traditional businesses say they have been turning to revenue and finance automation products that handle back-office operations to try to optimize efficiency.
Indeed, Taktile’s Guske notes that the current demand to continue scaling rapidly while simultaneously reducing costs has driven many fintechs to reduce operational expenses and improve efficiency through an increase in automation and reducing manual processes, especially in onboarding and underwriting.
“I see the biggest, actual application of generative AI in using it to create signals out of raw transaction or accounting data,” said Guske.

What’s not?

One thing’s for sure: consumer-oriented services aren’t the ones getting the love from investors.
This year has seen major digital banking groups and payment groups suffer steep drops in their valuations as shareholders reevaluated their business models in the face of climbing inflation and higher interest rates.
Revolut, the British foreign exchange services giant, had its valuation cut by shareholder Schroders Capital by 46%, implying a $15 billion markdown in its valuation from $33 billion, according to a filing. Atom Bank, a U.K. challenger bank, had its valuation marked down 31% by Schroders.
It comes as investment into European tech startups is on track to fall another 39% this year, from $83 billion in 2022 to $51 billion in 2023, according to venture capital firm Atomico.
“No one comes to these events to open like a new bank account, right?” Hiroki Takeuchi, CEO of GoCardless, told CNBC. “So if I’m Revolut, or something like that, then I’m much more focused on how I get my customers and how I make them happy. How do I get more of them? How do I grow them?”
“I don’t think Money 20/20 really helps with that. So that doesn’t surprise me that there’s more of a shift towards B2B stuff,” said Takeuchi.

Layoffs have also been a massive source of pain for the industry, with Zepz, the U.K. money transfer firm, cutting 26% of its workforce last month.
Even once richly valued business-focused fintechs have suffered, with Stripe announcing a $6.5 billion fundraise at a $50 billion valuation — a 50% discount to its last round — and Checkout.com experiencing a 15% drop in its internal valuation to $9 billion, according to startup news site Sifted.

Fintechs cooling on crypto

It comes after a turbulent year for the crypto industry which has seen failed projects and companies go bankrupt — likely a big part of why few crypto firms made an appearance in Amsterdam this year.
During the height of the most recent bull run, digital asset companies and know-your-customer providers dominated a lot of the Money 20/20 expo hall, but conference organizers tell CNBC that just 6% of revenue came from companies with a crypto affiliation.
Plunging liquidity in the crypto market, paired with a regulatory crackdown in the U.S. on firms and banks doing business with the crypto sector, have altered the value proposition for investing in digital asset integrations. Several fintech executives CNBC interviewed spoke of how they’re not interested in launching products tailored to crypto as the demand from their customers isn’t there.
Airwallex, a cross-border payments start-up, partners with banks and is regulated in various countries. Jack Zhang, the CEO of Airwallex, said the company will not be introducing support for cryptocurrencies in the near future, especially with the regulatory uncertainty.
“It’s very important for us to maintain the high standard of compliance and regulation … it is a real challenge right now to deal with crypto, especially with these global banks,” Zhang told CNBC in an interview on Tuesday.
Prajit Nanu, CEO of Nium, a fintech company that has a product that allows financial institutions to support cryptocurrencies, said interest in that service has “fallen off.”
“Banks who we power today have become very skeptical about crypto … as we see the overall ecosystem going through this … difficult time … we are looking at it much more carefully than what we would have looked at last year,” Nanu told CNBC in an interview Tuesday.

Blockchain is also no longer the buzzword it once was in fintech.
A few years ago, the trendy thing to talk about was blockchain technology. Big banks used to say that they weren’t keen on the cryptocurrency bitcoin but instead were optimistic about the underlying tech known as blockchain.
Banks praised the way the ledger technology could improve efficiency. But blockchain has barely been mentioned at Money 20/20.
One exception was JPMorgan, which is continuing to develop blockchain applications with its Onyx arm. Onyx uses the technology to create new products, platforms and marketplaces — including the bank’s JPM Coin, which it uses to transfer funds between some of its institutional clients.
However, Basak Toprak, executive director of EMEA and head of coin systems at JPMorgan, gave attendees a reality check about how limited practical use of the technology is in banking at the moment.
“I think we’ve seen a lot of POCs, proof of concepts, which are great at doing what it says on the tin, proving the concept. But I think, what we need to do is make sure we create commercially viable products for solving specific problems, sustain customer confidence, solving issues, and then launching a product or a way of doing things that is commercially viable, and working with the regulators.”
“Sometimes I think the role of the regulators is also quite important for industry as well.” More