Finance

The career of Andrea Orcel vividly encapsulates the recent history of European banking. At Merrill Lynch, now part of Bank of America, Mr Orcel advised on deals that formed part of the wave of mergers that crested in 2007, when a pan-European troika bought ABN AMRO, a Dutch lender. After the financial crisis of 2007-09, grand cross-border ambitions were ditched. Mr Orcel’s next job was to run the investment-banking arm of UBS, a Swiss champion. More

Between August and October 1943 American warplanes repeatedly bombed Schweinfurt, in southern Germany. The Bavarian town did not host army HQs or a major garrison. But it produced half of the Third Reich’s supply of ball bearings, used to keep axles rotating in everything from aircraft and tank engines to automatic rifles. To Allied planners, who had spent months studying the input-output tables of German industry, the minuscule manufacturing part had the trappings of a strategic commodity. Knock away Germany’s ability to make them, the thinking went, and its military-industrial complex would come crashing down. More

Klarna CEO Sebastian Siemiatkowski told CNBC that unfavorable share-based compensation rules in Europe could lead to Klarna losing talent to tech giants in the U.S. such as Google, Apple and Meta.
In a wide-ranging interview, he said that the lack of attractiveness of Europe for tech talent is the “number one risk” facing the company as it prepares for a much-anticipated IPO.
The Swedish fintech firm offers only a fifth of the equity as a share of revenue compared to a basket of its peers, according to a Klarna-commissioned study obtained by CNBC.

Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
Chris Ratcliffe | Bloomberg via Getty Images

A European technology talent brain drain is the biggest risk factor facing Klarna as the Swedish payments company gets closer to its upcoming initial public offering, according to CEO Sebastian Siemiatkowski.
In a wide-ranging interview with CNBC this week, Siemiatkowski said that unfavorable rules in Europe on employee stock options — a common form of equity compensation tech firms offer to their staff — could lead to Klarna losing talent to technology giants in the U.S. such as Google, Apple and Meta.

As Klarna — which is known for its popular buy now, pay later installment plans — prepares for its IPO, the lack of attractiveness of Europe as a place for the best and brightest to work has become a much more prominent fear, Siemiatkowski told CNBC.
“When we looked at the risks of the IPO, which is a number one risk in my opinion? Our compensation,” said Siemiatkowski, who is approaching his 20th year as CEO of the financial technology firm. He was referring to company risk factors, which are a common element of IPO prospectus filings.
Compared to a basket of its publicly-listed peers, Klarna offers only a fifth of its equity as a share of its revenue, according to a study obtained by CNBC which the company paid consulting firm Compensia to produce. However, the study also showed that Klarna’s publicly-listed peers offer six times the amount of equity that it does.

‘Lack of predictability’

Siemiatkowski said there a number of hurdles blocking Klarna and its European tech peers from offering employees in the region more favorable employee stock option plans, including costs that erode the value of shares they are granted when they join.

In the U.K. and Sweden, he explained that employee social security payments deducted from their stock rewards are “uncapped,” meaning that staff at companies in these countries stand to lose more than people at firms in, say, Germany and Italy where there are concrete caps in place.

The higher a firm’s stock price, the more it must pay toward employees’ social benefits, making it difficult for companies to plan expenses effectively. Britain and Sweden also calculate social benefits on the actual value of employees’ equity upon sale in liquidity events like an IPO.
“It’s not that companies are not willing to pay that,” Siemiatkowski said. “The biggest issue is the lack of predictability. If a staff cost is entirely associated with my stock price, and that has implications on my PNL [profit and loss] … it has cost implications for the company. It makes it impossible to plan.”
In the past year, Siemiatkowski has more clearly signalled Klarna’s ambitions to go public soon. In an interview with CNBC’s “Closing Bell,” he said that a 2024 listing was “not impossible.” In August, Bloomberg reported Klarna was close to selecting Goldman Sachs as the lead underwriter for its IPO in 2025.
Siemiatkowski declined to comment on where the company will go public and said nothing has been confirmed yet on timing. Still, when it does go public, Klarna will be among the first major fintech names to successfully debut on a stock exchange in several years.

Affirm, one of Klarna’s closest competitors in the U.S., went public in 2021. Afterpay, another Klarna competitor, was acquired by Jack Dorsey’s payments company Block in 2021 for $29 billion.

Klarna brain drain a ‘risk’

A study by venture capital firm Index Ventures last year found that, on average, employees at late-stage European startups own around 10% of the companies they work for, compared to 20% in the U.S.
Out of a selection of 24 countries, the U.K. ranks highly overall. However, it does a poorer job when it comes to the administration burdens associated with treatment of these plans. Sweden, meanwhile, fares worse, performing badly on factors such as the scope of the plans and strike price, the Index study said.
Asked whether he’s worried Klarna employees may look to leave the company for an American tech firm instead, Siemiakowski said it’s a “risk,” particularly as the firm is expanding aggressively in the U.S.
“The more prominent we become in the U.S market, the more people see us and recognize us — and the more their LinkedIn inbox is going to be pinged by offers from others,” Siemiatkowski told CNBC.
He added that, in Europe, there’s “unfortunately a sentiment that you shouldn’t pay that much to really talented people,” especially when it comes to people working in the financial services industry.
“There is more of that sentiment than in the U.S., and that is unfortunately hurting competitiveness,” Klarna’s co-founder said. “If you get approached by Google, they will fix your visa. They will transfer you to the U.S. These issues that used to be there, they’re not there anymore.”
“The most talented pool is very mobile today,” he added, noting that its now easier for staff to work remotely from a region that’s outside a company’s physical office space. More

How much money has Senegal borrowed? More than previously thought, according to Ousmane Sonko, who became its prime minister in April. At a press conference on September 26th he said the previous government had “lied to the people” by hiding loans worth 10% of GDP, enough to push the country’s public debt to 83% of national income. Since a full audit has not yet been published, it is hard to know what numbers to believe. The IMF, which has a $1.9bn bail-out programme with Senegal, is not pleased. More

If Chinese retail investors had their way they would forgo the seven-day National Day holiday that ends on October 7th. An aggressive stimulus package, announced in Beijing on September 24th, has unleashed the biggest stockmarket rally the country has witnessed in more than 15 years. Major indices have soared more than 25%; the Shanghai stock exchange has suffered glitches under the volume of buying activity. The prospect of halting for a full week has made netizens anxious: “We must keep trading; we must cancel National Day,” one young investor screamed into a video widely shared on WeChat, a social-media platform. More

People walk on a pedestrian bridge displaying the Shanghai and Shenzhen stock indexes on January 02, 2024 in Shanghai, China. 
Hugo Hu | Getty Images

Chinese stock ETFs surge

That’s because these funds mostly invest in Chinese equities that trade on the Hong Kong Stock Exchange or U.S. exchange-listed companies that are headquartered or incorporated in China. Mainland Chinese markets, including Shanghai and Shenzhen stock exchanges, will remain closed until Oct. 8.
“I am bullish on Chinese equities; this time is different,” Scott Rubner, tactical specialist at Goldman Sachs, said in a note. “I have never seen this much daily demand for Chinese equities: I do not even think we have gone back to benchmark index weights yet.”
Chinese equities turned around last week after Beijing unleashed a flood of stimulus measures to aid a deep economic slump, including rate cuts and reducing the amount of cash banks need to have on hand.
The government vow to provide strong stimulus induced newfound optimism in Chinese stocks that were beaten down amid a sluggish economy as well as regulatory crackdowns the past few years. David Tepper, founder of hedge fund Appaloosa Management, told CNBC last week that he’s buying “everything” related to China because of the government support.
JD.com surged 5% Wednesday, rising for a fifth straight day. Another e-commerce name PDD popped 4.8% after a 8% rally in the day prior. More

London’s Financial Conduct Authority said it has fined Starling “for financial crime failings related to its financial sanctions screening.”
Starling also repeatedly breached a requirement not to open accounts for high-risk customers, the FCA noted.
Starling, one of the U.K.’s most popular online-only challenger banks, has been widely viewed as a potential IPO candidate in the coming year or so.

The Starling Bank banking app on a smartphone.
Adrian Dennis | AFP via Getty Images

U.K. financial regulators hit British digital lender Starling Bank with a £29 million ($38.5 million) fine over failings related to its financial crime prevention systems.
In a statement on Wednesday, London’s Financial Conduct Authority said it had fined Starling “for financial crime failings related to its financial sanctions screening.” Starling also repeatedly breached a requirement not to open accounts for high-risk customers, the FCA said.

In response to the FCA penalty, Starling said it was sorry for the failings outlined by the regulator and that it had completed detailed screening and an in-depth back book review of customer accounts.
“I would like to apologise for the failings outlined by the FCA and to provide reassurance that we have invested heavily to put things right, including strengthening our board governance and capabilities,” David Sproul, chairman of Starling Bank, said in a statement Wednesday.
“We want to assure our customers and employees that these are historic issues. We have learned the lessons of this investigation and are confident that these changes and the strength of our franchise put us in a strong position to continue executing our strategy of safe, sustainable growth, supported by a robust risk management and control framework,” he added.
Starling, one of the U.K.’s most popular online-only challenger banks, has been widely viewed as a potential IPO candidate in the coming year or so. The startup previously signaled plans to go public, but has moved back its expected timing from an earlier targeted an IPO as early as 2023.
The FCA said in a statement that, as Starling expanded from 43,000 customers in 2017 to 3.6 million in 2023, the bank’s measures to tackle financial crimes failed to keep pace with that growth.

The FCA began looking into financial crime controls at digital challenger banks in 2021, concerned that fintech brands’ anti-money laundering and know-your-customer compliance systems weren’t robust enough to prevent fraud, money laundering and sanctions evasion on their platforms.
After this probe was first opened, Starling agreed to stop opening new bank accounts for high-risk customers until it improved its internal controls. However, the FCA says that Starling failed to comply with this provision and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
In January 2023, Starling became aware that, since 2017, its automated system was only screening clients against a fraction of the full list of individuals and entities subject to financial sanctions, the FCA said, adding that the bank identified systemic issues in its sanctions framework in an internal review.
Since then, Starling has reported multiple potential breaches of financial sanctions to relevant authorities, according to the British regulator.
The FCA said that Starling has already established programs to remediate the breaches it identified and to enhance its wider financial crime control framework.
The British regulator added that its investigation into Starling completed in 14 months from opening, compared to an average of 42 months for cases closed in the calendar year 2023/24. More

Meta says it has worked with U.K. banks NatWest and Metro Bank on an information-sharing agreement to help them prevent customers from falling victim to fraud.
The company is expanding its Fraud Intelligence Reciprocal Exchange (FIPE) to enable U.K. banks to share information on scams with Meta directly.
Meta has long faced calls from banks in the U.K. to do more to stop scammers from running rampant on its platforms, which include Facebook, Instagram, and WhatsApp.

Jakub Porzycki | Nurphoto | Getty Images

Facebook parent company Meta on Wednesday said that it’s working with two leading banks in the U.K. on an information-sharing arrangement to help protect consumers from fraud.
Meta said it was expanding its Fraud Intelligence Reciprocal Exchange (FIPE) to enable U.K. banks to directly share information with the social media giant, in a bid to help it detect and take down scamming accounts and coordinated fraud schemes.

Meta said that the tech has already been tested with multiple lenders in the U.K. In one example, Meta says it was able to take down 20,000 accounts from scammers engaged in a concert ticket scam network targeting people in the U.K. and U.S., thanks to data shared by British lenders NatWest and Metro Bank.
NatWest and Metro Bank are the only banks in the U.K. that are currently part of the fraud information-sharing pact, but more are set to join later on, according to Meta.
“This work has already seen us take action against thousands of accounts run by scammers, indicating the importance of banks and platforms working together to tackle this societal issue,” Nathaniel Gleicher, global head of counter-fraud at Meta, said in a statement Wednesday.
“We will only beat these criminals if we work together and share relevant information related to scams. Financial institutions can share unique information with us which we can in turn use to train our systems to take action against more scams globally,” Gleicher added.
Meta has long faced calls from banks in the U.K. to do more to stop scammers from running rampant on its platforms, which include Facebook, Instagram, and WhatsApp.

In 2022, British digital bank Starling, which is backed by Goldman Sachs, began boycotting Meta and pulled advertising from its platforms over concerns that the company was failing to tackle fraudulent financial advertising.
Meta’s apps have been frequently abused by scammers attempting to swindle users out of their money through a variety of fraudulent schemes.
One of the most common forms of scams users encounter on the company’s platforms is authorized push payment fraud, through which criminals attempt to convince people to send them money by impersonating individuals or businesses that are selling a service.
Meta already has policies in place banning promotion of financial fraud, such as loan scams and schemes promising high rates of returns. The firm also prohibits ads that promise unrealistic results or guarantee a financial return. More