Finance

There is an $85 million shortfall between what partner banks of fintech middleman Synapse are holding and what depositors are owed, according to the court-appointed trustee in the Synapse bankruptcy.
Customers of fintech firms that used Synapse to link up with banks had $265 million in balances.
But the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams said in a report filed late Thursday.
What’s worse, it’s still unclear what happened to the missing funds, she said.

Jelena McWilliams, chair of the Federal Deposit Insurance Corporation (FDIC), during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, D.C., U.S., on Tuesday, Aug. 3, 2021.
Al Drago | Bloomberg | Getty Images

There is an $85 million shortfall between what partner banks of fintech middleman Synapse are holding and what depositors are owed, according to the court-appointed trustee in the Synapse bankruptcy.
Customers of fintech firms that used Synapse to link up with banks had $265 million in balances. But the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams said in a report filed late Thursday.

The missing funds explain what is at the heart of the worst meltdown in the U.S. fintech sector since its emergence in the years after the 2008 financial crisis. More than 100,000 customers of a diverse set of fintech companies have been locked out of their savings accounts for nearly a month after the failure of Synapse, an Andreessen Horowitz-backed startup, amid disagreements over user balances.
While Synapse and its partners, including Evolve Bank & Trust, have lobbed accusations of improperly moving balances or keeping incorrect ledgers at each other in court filings, McWilliams’ report is the first outside attempt to determine the scope of missing funds in this mess.

Much unknown

Since being named trustee on May 24, McWilliams has worked with four banks — Evolve, American Bank, AMG National Trust and Lineage Bank — to reconcile their various ledgers so customers could regain access to their funds.
But the banks need much more information to complete the project, including understanding how a Synapse brokerage and lending business may have impacted fund flows, said McWilliams. She said Synapse apparently commingled funds among several institutions, using multiple banks to serve the same companies.
What’s worse, it’s still unclear what happened to the missing funds, she said.

“The source of the shortfall, including whether end-user funds and negative balance accounts were moved among Partner Banks in a way that increased or decreased the respective shortfalls that may have existed at each Partner Bank at an earlier time, is not known at this time,” McWilliams wrote.
McWilliams, former chair of the Federal Deposit Insurance Corporation and current partner at the law firm Cravath, didn’t respond to requests for comment.

Spreading the pain

McWilliams’ task has been made harder because there are no funds to pay external forensics firms or even former Synapse employees to help, she said in her report. Synapse fired the last of its employees on May 24.
Still, some customers whose funds were held at banks in what’s called demand deposit accounts have already begun getting access to accounts, she said.
But users whose funds were pooled in a communal way known as for benefit of, or FBO, accounts, will have a harder time getting their money. A full reconciliation will take weeks more to complete, she said.
In her report, McWilliams presented several options for Judge Martin Barash to consider at a Friday hearing that will allow at least some FBO customers to regain access to their funds.
The options include paying some customers out fully, while delaying payments to others, depending on whether the individual FBO accounts have been reconciled. Another option would be spreading the shortfall evenly among all customers to make limited funds available sooner.

‘This is a crisis’

At the start of the public hearing on Friday, McWilliams told Barash that her recommendation was that all FBO customers receive partial payments, which “will partially alleviate the effects to end users who are currently waiting locked out of access to their funds” while keeping a reserve for later payments.
But comments from Barash cast doubt on how that would move forward.
While profusely thanking McWilliams for her work, the judge said that he “struggled” with “what I can do, and how I can help.”
The case is “uncharted territory” and because the depositors’ funds weren’t the property of the Synapse estate, Barash said it wasn’t clear what the bankruptcy court could do.
“This is a crisis, and I would like to see a resolution, but I’m not sure if people are looking for court orders, what I can provide in terms of court orders,” Barash said.

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Back in December 2023, when the market was pricing in six or so rate cuts, Apollo Asset Management Co-President Scott Kleinman had a more contrarian view: He said he’d be betting against any rate cuts in 2024. 
That call so far has paid off. But higher-for-longer rates haven’t necessarily been a tailwind for the private equity industry as they keep financing costs higher.

The buyout deal count in the year through May 15 is tracking down 4% globally on an annualized basis compared with the already-muted activity from 2023, according to a report from Bain & Co. And the lack of investing has left a mountain worth $1.1 trillion of dry powder within buyout funds that ultimately needs to be deployed. 
However, Apollo’s Kleinman said he’s “very comfortable” with rates where they are now. 
“We’re probably the only private equity firm that has been hoping for higher rates for many, many years,’ Kleinman said in an interview for the Delivering Alpha Newsletter from the SuperReturn Conference in Berlin. “As a value-oriented investor, higher rates force more value discipline on corporate valuations, which just means more interesting companies to buy and more reasonable valuations.” 
As for Kleinman’s current view on rates? He said, “It is possible that one cut gets thrown in there, maybe, for political reasons, perhaps, but certainly, the data we’re looking at, wouldn’t call for a rate cut.” 

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A group of Credit Suisse bondholders filed a lawsuit against the Swiss government, seeking full compensation over the contentious decision to write down the failed bank’s Additional Tier 1 (AT1) debt.
Law firm Quinn Emanuel Urquhart & Sullivan, which represents the plaintiffs, on Thursday said that it had filed a lawsuit in the U.S. District Court for the Southern District of New York.
A spokesperson for the Swiss Finance Ministry declined to comment.

The Credit Suisse Group AG headquarters in Zurich, Switzerland, on Thursday, Aug. 31, 2023.
Bloomberg | Bloomberg | Getty Images

A group of Credit Suisse bondholders filed a lawsuit against the Swiss government, seeking full compensation over the contentious decision to write down the failed bank’s Additional Tier 1 (AT1) debt.
As part of Credit Suisse’s emergency sale to UBS last year, which was orchestrated by the Swiss government, Swiss regulator Finma wiped out roughly $17 billion of the bank’s AT1s, writing them down to to zero.

The bank’s common shareholders received payouts when the sale was completed.
The move angered bondholders and was seen to have upended the usual European hierarchy of restitution in the event of a bank failure under the post-financial crisis Basel III framework, which typically places AT1 bondholders above stock investors.
Law firm Quinn Emanuel Urquhart & Sullivan, which represents the plaintiffs, said Thursday that it had filed a lawsuit in the U.S. District Court for the Southern District of New York. It described Switzerland’s decision to write down the plaintiffs’ AT1 value to zero as “an unlawful encroachment on the property rights of the AT1 Bondholders.”
A spokesperson for the Swiss Finance Ministry declined to comment.
Finma previously defended its decision to instruct Credit Suisse to write down its AT1 bonds in March last year as a “viability event.”

“Through its actions, Switzerland needlessly wiped out $17 billion in AT1 instruments, unjustly violating the property rights of the holders of those instruments,” Dennis Hranitzky, partner and head of Quinn Emanuel’s Sovereign Litigation practice, said in a statement.
The face value of the AT1 bonds held by the plaintiffs in the suit was over $82 million, Reuters reported, citing the filing.

This photograph taken on March 24, 2023 in Geneva, shows a sign of Credit Suisse bank.
Fabrice Coffrini | AFP | Getty Images

AT1s are bank bonds that are considered a relatively risky form of junior debt. They date back to the aftermath of the 2008 global financial crisis, when regulators tried to shift risk away from taxpayers and increase the capital held by financial institutions to protect them against future crises.
One of the key attributes of AT1 bonds is that they are designed to absorb losses. This happens automatically when the capital ratio falls below the previously agreed threshold, and AT1s are converted into equity.
— CNBC’s Sophie Kiderlin contributed to this report. More

Chinese EV company Nio plans to expand to the Middle East this year, CEO William Li said on an earnings call Thursday, adding that deliveries of its lowest-priced brand will start in the first half of next year.
The U.S.-listed Chinese company plans to start offering its products and services in the United Arab Emirates by the end of this year, Li said, according to a FactSet transcript.
Nio launched a lower-priced brand called Onvo in May and is working on an even lower-priced brand called Firefly.

Chinese electric car company Nio launched its lower-cost brand Onvo on Wednesday, May 15, 2024, in Shanghai, China.
CNBC | Evelyn Cheng

BEIJING — Chinese electric car company Nio plans to expand to the Middle East this year, CEO William Li said on an earnings call Thursday, at a time when rivals have been increasing their global footprint.
The nearly 10-year-old company will also start shipping its lowest-cost brand, Firefly, in the first half of next year, Li said.

Nio, which recently received funding from Middle East-based investors, saw record-high deliveries of 20,544 vehicles in May.
The U.S.-listed Chinese company, which has been operating at a loss, plans to start offering its products and services in the United Arab Emirates by the end of this year, Li said, according to a FactSet transcript.
Nio primarily sells in China and in parts of Europe, with a focus on the higher-end market. Li said the brand can break even if monthly sales reach around 30,000 vehicles.
Rival BYD has also made the United Arab Emirates its entry point to the Middle East. The battery and electric car giant said in November it opened a showroom in Dubai Festival City as part of a collaboration with Al-Futtaim Electric Mobility Company.

As competition in the Chinese electric car market intensifies, Nio launched a lower-priced brand called Onvo in May. The Onvo L60 SUV, which is set to begin deliveries in September, starts at 219,900 yuan ($30,349) versus Tesla Model Y’s 249,900 yuan.

Li said Thursday the L60’s price was only for pre-sales, not the final price.
“We continue to believe that the Onvo L60 will be the key factor influencing NIO’s potential outlook in 2H24,” Nomura analysts said in a note Friday. They rate the stock neutral.

Nio’s third car brand

An even lower-priced brand, Firefly, is also in the works, Nio’s Li said.
He told investors Thursday that Firefly will deliver its first car in the first half of next year, priced between 100,000 yuan and 200,000 yuan.
Firefly will share the same point of sales as Nio-branded cars, Li said, noting it would be similar to the sales model used by MINI and BMW.
Part of BYD’s strategy has been to release vehicles and sub-brands for different market segments. EV startup Xpeng also plans to release a lower-priced brand, Mona, this month and begin mass deliveries in the third quarter.
Nio said its research and development expenses in the first quarter were 2.86 billion yuan, down 6.9% from the year-ago period.
Loss from operations during the first quarter was 5.5% higher from a year earlier at 5.39 billion yuan.

Onvo store expansion

Onvo, which has a separate sales channel from Nio, plans to open around 100 stores in China, Li said, adding each location would require an investment of about 1 million yuan to 2 million yuan.
“We also understand that the competition in ONVO’s segment is more intense than NIO,” Li said. “In that case, we will also strike a balance between the volume and the margin. We will not boost the sales volume at a cost of our vehicle margin.”
Onvo is expected to break even with about 20,000 to 30,000 vehicle sales a month, he said.
The company also plans to spend about 200,000 yuan to 300,000 yuan for each of its older battery swap stations to make them compatible with Onvo cars, Li said.
Nio’s power subsidiary is set to receive up to 1.5 billion yuan in fresh investment from a fund backed by the Chinese city of Wuhan, the company said in late May. More

Chinese e-commerce giant Alibaba is ramping up its global expansion with new services aimed at attracting small businesses in the U.S. and Europe.
Alibaba.com — the company’s business-to-business platform which sells to companies outside China — announced Thursday it’s launching “Alibaba Guaranteed.”
The new service will provide buyers with greater certainty on delivery, payments and dispute settlement.

Alibaba.com is a platform run by the Chinese e-commerce company of the same name that focuses on overseas business customers.
Sopa Images | Lightrocket | Getty Images

BEIJING — Chinese e-commerce giant Alibaba is ramping up its global expansion with new services aimed at attracting small businesses in the U.S. and Europe.
Alibaba.com — the company’s business-to-business platform which sells to companies outside China — announced Thursday it’s launching “Alibaba Guaranteed” to provide greater certainty on delivery, payments and dispute settlement.

The platform is part of Alibaba’s fast-growing international business, which also sells directly to consumers overseas through sites such as AliExpress.
While consumers in China have long enjoyed delivery tracking and favorable return policies, small businesses buying from cross-border e-commerce platforms have not, due to the added complexity of international trade.
Alibaba.com’s new service aims to provide buyers with more definite delivery dates and free local returns, the company said in a press release.
“We think this is in line with current global trends,” Kuo Zhang, president of Alibaba.com, said in an interview Thursday, according to CNBC’s translation of his Mandarin-language remarks.
He noted an increasing trend of fragmentation in supply chains, and said a growing number of local businesses, whether in cosmetics or the autos industry, need to buy globally in order to protect profit margins.

The online platform mostly sells products from China-based suppliers to small businesses in Europe, the U.S. and other parts of the world. Alibaba.com’s website indicates it’s possible to buy single products, or in bulk, but notes on its user registration page that “suppliers prefer to do business with companies.”
Zhang claimed that in the past five years, the number of buyers on Alibaba.com have at least tripled, with online gross merchandise value at about $50 billion. GMV measures total sales over a specific period.

Demand for equipment

In the last three to four years, Zhang said some of the more popular products sold on Alibaba.com include machines for custom printing T-shirts or laser cutting.
He noted that since the end of the Covid-19 pandemic, greater interest in supply chain diversification has driven demand for such machines. The growth of the new energy vehicle industry has also generated demand for new car parts, which Alibaba.com sells, Zhang said.
Sports products have also been popular with customers in Europe, he said.
In November, Alibaba.com invested in German business-to-business company Visable and its European marketplace europages.
Alibaba.com works with many EU-based suppliers that are selling within the bloc, Zhang said, adding the company aims to help the region accelerate its digitalization by using more tech for business.
Trade activity within the EU is far greater than the bloc’s trade with other countries, he pointed out.
Alibaba.com will also start incorporating artificial intelligence tools in the platform this year, Zhang said.
They include the ability of merchants to use AI to quickly generate product descriptions with search keywords, or provide customer service support during off-hours, he said. More

Pavlo Gonchar | SOPA Images | Lightrocket | Getty Images

Shares of GameStop shot to session highs Thursday after meme stock leader “Roaring Kitty” scheduled a livestream on YouTube, which would be his first one in almost four years.
Roaring Kitty, whose real name is Keith Gill, set the time for his live chat at noon Friday, which traders speculated would be a bullish discussion about his massive GameStop stake. The investor hosted three-hour livestreams in August 2020 explaining his investing thesis behind his favorite brick-and-mortar video game retailer.

GameStop popped more than 47% higher to close at $46.55 per share. The stock hit a high of $47.50 during the session, in which trading was briefly halted for volatility. The stock has more than doubled so far this week.

Stock chart icon

GameStop, 1-day

There were already more than 10,000 people waiting in the livestream and countless comments were flowing through the chat box.
Gill, who goes by DeepF——Value on Reddit, resurfaced online recently more than three years after sparking the historic trading mania in 2021 that burned short-selling hedge funds. Last Sunday, he started posting screenshots of his E-trade portfolio holding five million shares of GameStop common shares and 120,000 call options. Combined, they have a market value of at least $200 million now. He seemed to have held onto his positions as of Thursday night.
Those call options, if exercised, could bring Gill’s stake in GameStop to 17 million shares. If the stock returns to its May high of $64.83 per share, Gill’s position would then be worth more than $1 billion.
Gill had paused posting updates during the week after The Wall Street Journal reported that Morgan Stanley’s E-Trade broker was considering booting him because of the worry that what he was doing could amount to market manipulation. 

CNBC has not independently verified Gill’s holdings.
The investor is a former marketer for Massachusetts Mutual Life Insurance. The mania in 2021 led to a series of congressional hearings, featuring Gill, around brokers’ practices and gamifying retail trading. More

Lower-income U.S. consumers are feeling stretched with their spending, Five Below CEO Joel Anderson said Wednesday.
The company’s revenue for the first quarter of fiscal 2024 came in lower than expected and it posted weak revenue guidance.
His comments come as consumer sentiment has been lagging despite some progress on inflation.

A shopper browses a selection of body boards outside a Five Below store in Bloomington, Illinois, on July 25, 2018.
Daniel Acker | Bloomberg | Getty Images

While inflation is showing signs of easing, consumers in the country may still be feeling its effects for quite some time, according to Joel Anderson, CEO of discount retailer Five Below. The executive sees underperformance particularly in the lower-income demographic.
“The lower-end customer is really being stretched,” Anderson said on an earnings call with analysts Wednesday. “We’ve got to deliver value, and we’ve got to really display that in how we go to market, and when you walk in the store, what you see. But all that’s in flight right now, and [we] expect to see some of those changes improve by back half of the year.”

Five Below issued soft revenue guidance for the second quarter and the full year. Revenue for the first quarter also came in below expectations.
Shares plummeted nearly 11% Thursday, hitting a new 52-week low during the trading session. The retailer is down more than 44% in 2024.
“Consumers were more discerning with their dollars, increasingly buying to need,” Anderson added. The types of products they’ve been purchasing reflect this, he added, noting that consumers bought more in the company’s “consumable” categories such as candy, food and beverage, beauty and health and beauty aids.
The CEO also noted that Five Beyond — the company’s in-store shop that sells some products for more than $5 — performed the best among its lower-income household stores. This, he said, indicates that when consumers see the value of products, the more they have to “stretch their dollar.”
Though there has been some indication that aspects of the U.S. economy are improving, consumer sentiment has been lagging. In fact, consumer sentiment dropped more than 10% in May, according to the University of Michigan Survey of Consumers. Not only that, more than half of Americans falsely believe the country is in an economic recession.
“The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories, such as food, fuel and rent, and are therefore far more deliberate with their discretionary dollars,” Anderson said.

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Salesforce said Thursday it will open its first, flagship artificial intelligence center in the U.K., in London’s Blue Fin Building.
The center, part of Salesforce’s $4 billion investment in the U.K., will be used to encourage industry collaboration as well as facilitate AI training and upskilling programs.
Salesforce also revealed that its venture arm, Salesforce Ventures, has invested more than $200 million into U.K. startups, including AutoGen AI and Eleven Labs.

A Salesforce corporate logo hangs over the front door of the Salesforce Tower on January 22, 2024, in New York City.
Gary Hershorn | Getty Images

LONDON — Enterprise tech giant Salesforce is opening an artificial intelligence center in London, making a bullish bet on the U.K. as a global technology hub.
The U.S. software giant said in a statement Thursday that it is opening a more-than-40,000-square-foot facility in London’s Blue Fin Building, which can host over 300 people.

It will be used to encourage industry collaboration among tech firms, AI experts, Salesforce partners and customers, the company said, as well as facilitate AI training and upskilling programs.
Salesforce said it expects the AI center to play a role in creating 500,000 AI-related jobs in the U.K.
The facility will officially open June 18 with a free event to train more than 100 developers.

Salesforce said the center, which is planned to be the first of many globally, would support its U.K. and Ireland business. It will be led by the firm’s U.K. and Ireland CEO, Zahra Bahrololoumi.
The news was announced at the Salesforce World Tour event at the London Excel venue on Thursday, which is expected to see more than 17,500 delegates and customers gather from companies including Aston Martin, McLaren, Just Eat Takeway and John Lewis.

“By locating Salesforce’s first, flagship AI center in London, we are sending a clear message to customers and partners on AI: we are deeply committed to working closely together so that you can reap the rewards of this transformative technology, while ensuring it is a force for good,” Salesforce’s Bahrololoumi said in a statement.

$4 billion investment in UK

The AI center forms part of a $4 billion investment in the U.K., which Salesforce committed to make over five years in 2023.

In addition to announcing the opening of its AI center, Salesforce also revealed that it had invested more than $200 million into U.K. startups via its venture capital arm, Salesforce Ventures. These include the procurement bid writing platform AutoGen AI and Eleven Labs, an AI-powered text-to-speech and voice generator.
Patrick Stokes, executive vice president of product and industries marketing, said the U.K. was a “really interesting place to
a really interesting place to do it, because some of the challenges here with AI and data are, in some cases a little bit more difficult to solve than they are in the US, there’s a little bit more regulation here. And consumer protection. And that somewhat counter intuitively, that’s a good thing for us as, as enterprise developers, because if we can solve those problems here, we’ve kind of solved them for everywhere. So typically, you want to kind of lean into the more challenging environments, from a from a product development standpoint, and learn as much as you can, it, as you know, is more challenging environments. We expect to see more of that type of regulation and consumer privacy protection. There are parts of the United States where we were where we see it emerging, we’d like to see more so. So I think leaning into the UK is a smart decision for us. And it ties in very nicely to the commitment that we made, probably right here in this room last year.
For a billion investment in the UK.
The news comes amid concerns over whether Salesforce’s investments into AI are paying off. The company last week reported weaker-than-expected fiscal first-quarter revenue and issued guidance that fell short of investor expectations.
Salesforce reported revenue of $9.13 billion for the period, up 11% from a year ago but below analyst expectations of $9.17 billion. The company said it expects adjusted earnings of $2.34 to $2.36 per share for the current quarter, lower than the $2.40 per share expected by analysts. More