Finance

One exchange-traded fund is betting on a U.S. manufacturing job resurgence.
Tema ETFs CEO and founder Maurits Pot is behind the American Reshoring ETF (RSHO) that focuses on industrials.

“Some will call it deglobalization. We’re in the early innings,” Pot told CNBC’s “ETF Edge” this week. “At the heart of it is job creation, manufacturing and reshoring — bringing back local manufacturing jobs.”
Pot’s firm launched the American Reshoring ETF in May 2023. Since its inception, the exchange-traded fund is up almost 37% as of Wednesday’s close.

Despite the strong performance, “ETF Edge” host Bob Pisani contends ETFs built around a theme often come and go.
However, Strategas’ Todd Sohn, who tracks the ETF industry, thinks investing in U.S. manufacturing is a sound strategy. He points to the industrial sector’s runway for growth after a vast reduction in size over the past three decades.
“If I am going to play the industrials in a thematic way, I like the route of going active,” the firm’s managing director said. “I do think there is staying power here as opposed to some of the fads we’ve seen in the thematic space — particularly those that are a little more tech and growth oriented.”

The American Reshoring ETF is underperforming the broader market over the past three months, falling more than 4%.
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Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates.
Minutes released Wednesday showed that policymakers lacked the confidence they needed to lower policy, while they generally agreed there should be no rush to cut.

Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates, minutes released Wednesday showed.
“Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent,” the meeting summary said.

Though the minutes reflected disagreement from the 19 central bankers who took part in the discussion, with some even indicating a penchant toward raising rates if necessary, the meeting concluded with Federal Open Market Committee voters holding rates in place.
The Fed targets 2% annual inflation, a level it has been above since early in 2021. Officials at the meeting said data has improved lately, though they are want more evidence that it will continue.
Meeting participants “emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee’s 2 percent objective.”
At the meeting, policymakers also provided an update on economic projections and monetary policy over the next several years.
The FOMC “dot plot” showed one quarter percentage point cut by the end of 2024, down from the three indicated following the last update in March. Even though the dot plot indicated one cut this year, futures markets continue to price in two, starting in September.

Also, the committee largely left its economic projections intact, though they lowered their inflation expectations for this year.
In discussions over how they would approach monetary policy, the minutes reflected some disagreements. Some members noted the need to tighten the reins should inflation persist, while others made the case that they should be ready to respond should the economy falter or the labor market weaken.
“Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised,” the minutes stated. “A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness.”
The minutes do not identify individual members nor do they provide exact amounts for the number of officials expressing particular viewpoints. However, in the Fed parlance, “a number” is considered more than “several.”
The summary also noted a “vast majority” saw economic growth “gradually cooling” and that the current policy is “restrictive,” a key term as the officials contemplate how restrictive policy needs to be while bringing down inflation and not causing undue economic harm.
Since the meeting, officials have largely stuck to a cautious script stressing data dependency rather than forecasts. However, there have been indications from multiple officials, including Chair Jerome Powell, that continued encouraging readings on inflation would provide confidence that rates can be lowered.
In an appearance Tuesday in Portugal, Powell said the risks of cutting too soon and risking a resurgence in inflation against cutting too late and endangering economic growth have come more into balance. Previously, officials had stressed the importance of not backing off the inflation fight too soon. More

President Joe Biden and former President Donald Trump traded barbs about the U.S. economy during their first presidential debate.
Trump said Biden caused high pandemic-era inflation, which surged right after Biden took office.
Neither Biden nor Trump is to blame for much of the inflation, however, economists said: The Covid-19 pandemic, Russia’s war in Ukraine and Federal Reserve policy mishaps were beyond their control.
However, some of their policies likely played a role, too, economists said.

Former President Donald Trump, left, and President Joe Biden face off in the first debate of the 2024 presidential campaign, in Atlanta, June 27, 2024.
Andrew Harnik | Getty Images News | Getty Images

The recent U.S. presidential debate saw both candidates trade barbs related to the economy. High pandemic-era inflation was among the grievances.
“He caused the inflation,” Trump said of Biden during the June 27 debate. “I gave him a country with no, essentially no inflation,” he added.

Biden countered by saying inflation was low during Trump’s term because the economy “was flat on its back.”
“He decimated the economy, absolutely decimated the economy,” Biden said.

But the cause of inflation isn’t so black-and-white, economists say.
In fact, Biden and Trump are not responsible for much of the inflation consumers have experienced in recent years, they said.

‘Neither Trump nor Biden is to blame’

Global events beyond Trump’s or Biden’s control wreaked havoc on supply-and-demand dynamics in the U.S. economy, fueling higher prices, economists said.

There were other factors, too.
The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies such as pandemic relief packages also likely played a role, as might have so-called “greedflation.”
“I don’t think it’s a simple yes/no kind of answer,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank.
“In general, presidents get more credit and blame for the economy than they deserve,” he said.
More from Personal Finance:Trump may roll back student loan forgiveness programs if electedWhat a Supreme Court ruling could mean for Biden’s ‘billionaire tax’Biden, Trump accuse each other of ruining Social Security, Medicare
That Biden is seen as stoking high inflation is due somewhat to optics: He took office in early 2021, around the time inflation spiked notably, economists said.
Likewise, the Covid-19 pandemic plunged the U.S. into a severe recession during Trump’s tenure, pulling the consumer price index to near zero in spring 2020 as unemployment ballooned and consumers cut spending.
“In my view, neither Trump nor Biden is to blame for the high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The blame goes to the pandemic and the Russian war in Ukraine.”

The big reasons inflation spiked

Inflation has many tentacles. At a high level, hot inflation is largely an issue of mismatched supply and demand.
The pandemic upended the typical dynamics. For one, it disrupted global supply chains.
There were labor shortages: Illness sidelined workers. Child-care centers closed, making it hard for parents to work. Others were worried about getting sick on the job. A decline in immigration also reduced worker supply, economists said.
China shut down factories and cargo ships couldn’t be unloaded at ports, for example, reducing the supply of goods.
Meanwhile, consumers changed their buying patterns.
They bought more physical stuff such as living room furniture and desks for their home offices as they spent more time indoors — a departure from pre-pandemic norms, when Americans tended to spend more money on services such as dining out, travel, and going to movies and concerts.

Cargo containers sit stacked on ships at the Port of Los Angeles, the nation’s busiest container port, in San Pedro, California, on Oct. 15, 2021.
Mario Tama | Getty Images News | Getty Images

High demand, which boomed when the U.S. economy reopened broadly, coupled with goods shortages fueled higher prices.
There were other related factors, too.
For example, automakers didn’t have enough semiconductor chips necessary to build cars, while rental car companies sold off their fleets because they didn’t think the recession would be short-lived, making it pricier to rent when the economy rebounded quickly, Wessel said.
As Covid cases were hitting record highs heading into 2022, further disrupting supply chains, Russia’s war in Ukraine “supercharged” inflation by stoking higher prices for commodities such as oil and food around the world, Zandi said.
As a result, global inflation hit a level “higher than seen in several decades,” the International Monetary Fund wrote in October 2022.
“We only have to look at the still high inflation rates in most other advanced economies to see that most of this inflation period was really about global trends … rather than about the specific policy actions of any given government (though they did of course play some role),” Stephen Brown, deputy chief North America economist for Capital Economics, wrote in an e-mail.

Big spending bills’ impact ‘only clear in hindsight’

However, Biden and Trump aren’t entirely without fault: They greenlit additional government spending in the pandemic era that contributed to inflation, for example, economists said.
For example, the American Rescue Plan — the $1.9 trillion stimulus package Biden signed in March 2021— offered $1,400 stimulus checks, enhanced unemployment benefits and a larger child tax credit to households, in addition to other relief.
The policy led to “some good things,” such as a strong job market and low unemployment, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.
But its magnitude was greater than the U.S. economy needed at the time, serving to raise prices by putting more money in consumers’ pockets, which fueled demand, he said.
“I do think President Biden bears some responsibility for the inflation that we’ve been living through for the past few years,” Strain said.

He estimated the American Rescue Plan added about 2 percentage points to underlying inflation. The consumer price index peaked around 9% in June 2022, the highest since 1981. It’s since declined to 3.3% as of May 2024.
The Federal Reserve — the U.S. central bank — aims for a long-term inflation rate near 2%.
“I think if it weren’t for the American Rescue Plan, the U.S. still would have had inflation,” Strain added. “So I think it’s important not to overstate the situation.”
However, Zandi viewed the ARP’s inflationary impact as “good” and “desirable,” bringing the economy back to the Fed’s long-term target inflation rate after a prolonged period of below-average inflation.
Trump had also authorized two stimulus packages, in March and December 2020, worth about $3 trillion.
These so-called “fiscal policy” responses were insurance against a lousy economic recovery, perhaps overshooting after the U.S.’ lackluster response to the Great Recession that mired the nation in high unemployment for years, Wessel said.
That the U.S. issued perhaps too much stimulus was the presidents’ fault but “only clear in hindsight,” he said.
Biden and Trump also enacted other policies that may contribute to higher prices, economists said.
For example, Trump imposed tariffs on imported steel, aluminum and several goods from China, which Biden largely kept intact. Biden also set new import taxes on Chinese goods such as electric vehicles and solar panels.

The Fed and ‘greedflation’

Fed officials also have some responsibility for inflation, economists said.
The central bank uses interest rates to control inflation. Increasing rates raises borrowing costs for businesses and consumers, cooling the economy and therefore inflation.
The Fed has raised rates to their highest in about two decades, but was initially slow to act, economists said. It first increased them in March 2022, about a year after inflation started to spike.
It also waited too long to throttle back on “quantitative easing,” Strain said, a bond-buying program meant to stimulate economic activity.
“That was a mistake,” Zandi said of Fed policy. “I don’t think anyone would have gotten it right given the circumstance, but in hindsight it was an error.”
Some observers have also pointed to so-called “greedflation” — the notion of corporations taking advantage of the high-inflation narrative to raise prices more than needed, thereby boosting profits — as a contributing factor.
It’s unlikely this was a cause of inflation, though it may have contributed slightly, economists said.
“To the extent anything like that happened — which I’m not sure it did — this would be a very minor factor in the inflation we had,” said Strain. He estimates the dynamic would have added well less than 1 percentage point to the inflation rate.
“Companies always look for an opportunity to raise prices when they can,” Wessel said. “I think they took advantage of the inflationary climate, but I don’t think they caused it.” More

JPMorgan’s Marko Kolanovic.
Crystal Mercedes | CNBC

A top strategist at JPMorgan who was caught offside by the stock market rally is quitting the investment firm.
Marko Kolanovic, who served as chief global markets strategist and co-head of global research, is leaving the bank to explore other opportunities, according to a source familiar with the internal announcement.

In his place, Hussein Malik will become the sole head of global research, and Dubravko Lakos-Bujas will serve as chief markets strategist.
Kolanovic rose to prominence among market watchers for correctly predicting a stock market rebound in the middle of the Covid-19 pandemic. But he has been consistently bearish over the past two years as the market has reached new highs.
JPMorgan’s current year-end prediction for the S&P 500 is 4,200, while no other major firm in the CNBC Market Strategist Survey is below 5,200. JPMorgan’s prediction is officially credited to Lakos-Bujas, who worked under Kolanovic.
The S&P 500 is up more than 15% this year and closed above 5,500 on Tuesday.
News of Kolanovic’s departure was first reported by Bloomberg News.

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Tungsten is nearly as hard as diamond and has a high energy density, making it an important material in weapons, autos, electric car batteries, semiconductors and industrial cutting machines.
Chipmakers TSMC and Nvidia both use tungsten.
While the Biden administration raised tariffs on imports of tungsten in May, China this past weekend did not include the metal in new regulations for boosting its oversight of domestic rare earths production.

Pictured here is a stone with tungsten ore inside a mine in Germany run by Saxony Minerals and Exploration.
Picture Alliance | Picture Alliance | Getty Images

BEIJING — China dominates the supply chain for many of the world’s critical minerals, but so far it’s held off on sweeping restrictions on at least one: tungsten.
The metal is nearly as hard as diamond and has a high energy density. That’s made tungsten an important material in weapons, autos, electric car batteries, semiconductors and industrial cutting machines. Chipmakers such as Taiwan Semiconductor Manufacturing Company and Nvidia both use the metal.

“I don’t expect any saber-rattling over tungsten,” said Lewis Black, CEO of Canada-based Almonty Industries, which is spending at least $75 million to reopen a tungsten mine in South Korea later this year.
“If you get too belligerent about diversification, [it becomes a situation that’s] biting the hand that feeds you,” he said, adding that “tungsten has always been a diplomatic metal.”
While the Biden administration raised tariffs on imports of tungsten in May, China this past weekend did not include the metal in new regulations for boosting its oversight of domestic rare earths production.

But China might not be too concerned, because the Chinese government ignored the new tariffs… They completely ignored it because the Chinese don’t want tensions to rise.

Lewis Black
CEO of Almonty

“The tariffs were more of a warning shot, as Biden only put tariffs on three of the 25 strategic metals China exports,” Black said.
“But China might not be too concerned, because the Chinese government ignored the new tariffs, unlike in the past when they restricted some exports of rare earths. They completely ignored it because the Chinese don’t want tensions to rise.”

Asked last month if China would retaliate to the latest U.S. tariffs on tungsten, China’s Ministry of Commerce spokesperson He Yadong didn’t announce countermeasures. Instead, he called on the U.S. to remove the additional duties.
Commodity price reporting and analytics company Fastmarkets pointed out earlier this year that China has reduced national production quotas for its tungsten mines due to environmental restrictions.

Diversifying away from China

Still, Black expects his company to benefit from growing efforts to diversify away from China. Almonty claims the forthcoming mine in South Korea has the potential to produce 50% of the world’s ex-China tungsten supply.
Demand for non-Chinese tungsten is already on the rise.
“We see in the U.S., in Europe, they ask their suppliers for a China-free supply chain,” said Michael Dornhofer, founder of metals consulting firm Independent Supply Business Partner.

The U.S. REEShore Act — or Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022 — prohibits the use of Chinese tungsten in military equipment starting in 2026, while the European Commission last year extended tariffs on imported Chinese tungsten carbide for another five years, Almonty Industries pointed out in a report.
The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party last month announced a new working group on the U.S. critical minerals policy.

Soaring tungsten prices

Expectations for higher demand and limited supplies of tungsten have pushed prices to multi-year highs, although they have tapered off in the last several weeks.
Dornhofer said in an interview in late May that he was also seeing Chinese buyers increasing their tungsten purchases.
“Since the beginning of this year, they are not only asking for Western concentrate, but they are buying significant volumes, paying even more than Western companies are willing to pay,” he said. “Definitely [going to be] a game changer.”

Back in January, U.S.-based research firm Macro Ops said: “We’re approaching an inflection point in tungsten supply. The US will quickly run out of stockpiled tungsten and flip from net seller to buyer over the next 12-18 months.”
The U.S. Bureau of Industry and Security at the Department of Commerce did not immediately respond to a CNBC request for comment on this story.
Brandon Beylo, head of investment research at Macro Ops, told CNBC in an email there are only six companies in the U.S. with capacity to produce tungsten. He added that the U.S. hasn’t produced tungsten domestically since 2015, meaning future U.S. supply must come from overseas.
He said the firm doesn’t own tungsten-related stocks, but that he’s personally looking for ways to access the physical commodity. There are no futures for trading tungsten.

Other tungsten players going to South Korea

China dominates over 80% of the tungsten supply chain, although local production costs are rising as the mines age, according to Argus, noting Chinese imports of the metal from North Korea, central Africa and Myanmar.
“This presents an opportunity for projects outside China,” Mark Seddon, principal, consulting and analytics at Argus, said in a June 28 webinar.
Other non-Chinese companies in the tungsten supply chain are going to South Korea.
In February, IMC Endmill, an affiliate of Warren Buffett-owned IMC Group, signed an agreement with the Daegu city government for a 130 billion Korean won ($93.6 million) investment in a tungsten powder manufacturing facility, according to a local news report.
IMC Group did not immediately respond to CNBC’s request for comment.

China’s dominance in global critical minerals supply chains has been built up over several decades.
Dornhofer pointed out that efforts to produce tungsten outside of China have languished for years, including plans for a mine in New Brunswick, Canada, that would have significantly increased global tungsten capacity.
All these projects have been on the table since 20 years ago, he said. “When people tell you in two years, three years they will be in operation, it’s a question of whether you believe them. On the other [hand], the tungsten is in the ground. It’s still there.”
Almonty claims to be the biggest producer of tungsten outside China and right now, primarily operates in Portugal and Spain. The forthcoming mine in Sangdong, South Korea, closed in the 1990s.
After the mine reopens later this year, Black expects his company will account for only 7% or 8% of global tungsten supply.
“We’re not crowding out any Chinese,” he said. “We don’t intend to.”
“Now if we’re going to produce 30% to 40%, I’m taking a battle with China, which wouldn’t be a smart thing to do.” More

For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The collapse of middleman Synapse has revealed fintech’s promise of safety as a mirage. More than 100,000 Americans with $265 million in deposits have been locked out of their accounts.
The implications of this disaster may be far-reaching. The most popular banking apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle. They all believed their money was protected by an FDIC safety net.

Natasha Craft, a 25-year-old FedEx driver from Mishawaka, Indiana. She has been locked out of her Yotta banking account since May 11.
Courtesy: Natasha Craft

When Natasha Craft first got a Yotta banking account in 2021, she loved using it so much she told her friends to sign up.
The app made saving money fun and easy, and Craft, a now 25-year-old FedEx driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited directly into a Yotta account and used the startup’s debit card to pay for all her expenses.

The app — which gamifies personal finance with weekly sweepstakes and other flashy features — even occasionally covered some of her transactions.
“There were times I would go buy something and get that purchase for free,” Craft told CNBC.
Today, her entire life savings — $7,006 — is locked up in a complicated dispute playing out in bankruptcy court, online forums like Reddit and regulatory channels. And Yotta, an array of other startups and their banks have been caught in a moment of reckoning for the fintech industry.
For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The startups prominently displayed protections afforded by the Federal Deposit Insurance Corp., lending credibility to their novel offerings. After all, since its 1934 inception, no depositor “has ever lost a penny of FDIC-insured deposits,” according to the agency’s website.

But the widening fallout over the collapse of a fintech middleman called Synapse has revealed that promise of safety as a mirage.
Starting May 11, more than 100,000 Americans with $265 million in deposits were locked out of their accounts. Roughly 85,000 of those customers were at Yotta alone, according to the startup’s co-founder, Adam Moelis.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle.
They come from all walks and stages of life, from Craft, the Indiana FedEx driver; to the owner of a chain of preschools in Oakland, California; a talent analyst for Disney living in New York City; and a computer engineer in Santa Barbara, California. A high school teacher in Maryland. A parent in Bristol, Connecticut, who opened an account for his daughter. A social worker in Seattle saving up for dental work after Adderall abuse ruined her teeth.

‘A reckoning underway’

Since Yotta, like most popular fintech apps, wasn’t itself a bank, it relied on partner institutions including Tennessee-based Evolve Bank & Trust to offer checking accounts and debit cards. In between Yotta and Evolve was a crucial middleman, Synapse, keeping track of balances and monitoring fraud.
Founded in 2014 by a first-time entrepreneur named Sankaet Pathak, Synapse was a player in the “banking-as-a-service” segment alongside companies like Unit and Synctera. Synapse helped customer-facing startups like Yotta quickly access the rails of the regulated banking industry.
It had contracts with 100 fintech companies and 10 million end users, according to an April court filing.
Until recently, the BaaS model was a growth engine that seemed to benefit everybody. Instead of spending years and millions of dollars trying to acquire or become banks, startups got quick access to essential services they needed to offer. The small banks that catered to them got a source of deposits in a time dominated by giants like JPMorgan Chase.
But in May, Synapse, in the throes of bankruptcy, turned off a critical system that Yotta’s bank used to process transactions. In doing so, it threw thousands of Americans into financial limbo, and a growing segment of the fintech industry into turmoil.
“There is a reckoning underway that involves questions about the banking-as-a-service model,” said Michele Alt, a former lawyer for the Office of the Comptroller of the Currency and a current partner at consulting firm Klaros Group. She believes the Synapse failure will prove to be an “aberration,” she added.
The most popular finance apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them. They account for 60% of all new fintech account openings, according to data provider Curinos. Block and PayPal are publicly traded; Chime is expected to launch an IPO next year.
Block, PayPal and Chime didn’t provide comment for this article.

‘Deal directly with a bank’

While industry experts say those firms have far more robust ledgering and daily reconciliation abilities than Synapse, they may still be riskier than direct bank relationships, especially for those relying on them as a primary account.
“If it’s your spending money, you need to be dealing directly with a bank,” Scott Sanborn, CEO of LendingClub, told CNBC. “Otherwise, how do you, as a consumer, know if the conditions are met to get FDIC coverage?”
Sanborn knows both sides of the fintech divide: LendingClub started as a fintech lender that partnered with banks until it bought Boston-based Radius in early 2020 for $185 million, eventually becoming a fully regulated bank.

Scott Sanborn, LendingClub CEO
Getty Images

Sanborn said acquiring Radius Bank opened his eyes to the risks of the “banking-as-a-service” space. Regulators focus not on Synapse and other middlemen, but on the banks they partner with, expecting them to monitor risks and prevent fraud and money laundering, he said.
But many of the tiny banks running BaaS businesses like Radius simply don’t have the personnel or resources to do the job properly, Sanborn said. He shuttered most of the lender’s fintech business as soon as he could, he says.
“We are one of those people who said, ‘Something bad is going to happen,'” Sanborn said.
A spokeswoman for the Financial Technology Association, a Washington, D.C.-based trade group representing large players including Block, PayPal and Chime, said in a statement that it is “inaccurate to claim that banks are the only trusted actors in financial services.”
“Consumers and small businesses trust fintech companies to better meet their needs and provide more accessible, affordable, and secure services than incumbent providers,” the spokeswoman said.
“Established fintech companies are well-regulated and work with partner banks to build strong compliance programs that protect consumer funds,” she said. Furthermore, regulators ought to take a “risk-based approach” to supervising fintech-bank partnerships, she added.
The implications of the Synapse disaster may be far-reaching. Regulators have already been moving to punish the banks that provide services to fintechs, and that will undoubtedly continue. Evolve itself was reprimanded by the Federal Reserve last month for failing to properly manage its fintech partnerships.

In a post-Synapse update, the FDIC made it clear that the failure of nonbanks won’t trigger FDIC insurance, and that even when fintechs partner with banks, customers may not have their deposits covered.
The FDIC’s exact language about whether fintech customers are eligible for coverage: “The short answer is: it depends.”

FDIC safety net

While their circumstances all differed vastly, each of the customers CNBC spoke to for this story had one thing in common: They thought the FDIC backing of Evolve meant that their funds were safe.
“For us, it just felt like they were a bank,” the Oakland preschool owner said of her fintech provider, a tuition processor called Curacubby. “You’d tell them what to bill, they bill it. They’d communicate with parents, and we get the money.”
The 62-year-old business owner, who asked CNBC to withhold her name because she didn’t want to alarm employees and parents of her schools, said she’s taken out loans and tapped credit lines after $236,287 in tuition was frozen in May.
Now, the prospect of selling her business and retiring in a few years seems much further out.
“I’m assuming I probably won’t see that money,” she said, “And if I do, how long is it going to take?”
When Rick Davies, a 46-year-old lead engineer for a men’s clothing company that owns online brands including Taylor Stitch, signed up for an account with crypto app Juno, he says he “distinctly remembers” being comforted by seeing the FDIC logo of Evolve.
“It was front and center on their website,” Davies said. “They made it clear that it was Evolve doing the banking, which I knew as a fintech provider. The whole package seemed legit to me.”
He’s now had roughly $10,000 frozen for weeks, and says he’s become enraged that the FDIC hasn’t helped customers yet.
For Davies, the situation is even more baffling after regulators swiftly took action to seize Silicon Valley Bank last year, protecting uninsured depositors including tech investors and wealthy families in the process. His employer banked with SVB, which collapsed after clients withdrew deposits en masse, so he saw how fast action by regulators can head off distress.
“The dichotomy between the FDIC stepping in extremely quickly for San Francisco-based tech companies and their impotence in the face of this similar, more consumer-oriented situation is infuriating,” Davies said.
The key difference with SVB is that none of the banks linked with Synapse have failed, and because of that, the regulator hasn’t moved to help impacted users.
Consumers can be forgiven for not understanding the nuance of FDIC protection, said Alt, the former OCC lawyer.
“What consumers understood was, ‘This is as safe as money in the bank,'” Alt said. “But the FDIC insurance isn’t a pot of money to generally make people whole, it is there to make depositors of a failed bank whole.”

Waiting for their money

For the customers involved in the Synapse mess, the worst-case scenario is playing out.
While some customers have had funds released in recent weeks, most are still waiting. Those later in line may never see a full payout: There is a shortfall of up to $96 million in funds that are owed to customers, according to the court-appointed bankruptcy trustee.
That’s because of Synapse’s shoddy ledgers and its system of pooling users’ money across a network of banks in ways that make it difficult to reconstruct who is owed what, according to court filings.
The situation is so tangled that Jelena McWilliams, a former FDIC chairman now acting as trustee over the Synapse bankruptcy, has said that finding all the customer money may be impossible.
Despite weeks of work, there appears to be little progress toward fixing the hardest part of the Synapse mess: Users whose funds were pooled in “for benefit of,” or FBO, accounts. The technique has been used by brokerages for decades to give wealth management customers FDIC coverage on their cash, but its use in fintech is more novel.
“If it’s in an FBO account, you don’t even know who the end customer is, you just have this giant account,” said LendingClub’s Sanborn. “You’re trusting the fintech to do the work.”
While McWilliams has floated a partial payment to end users weeks ago, an idea that has support from Yotta co-founder Moelis and others, that hasn’t happened yet. Getting consensus from the banks has proven difficult, and the bankruptcy judge has openly mused about which regulator or body of government can force them to act.
The case is “uncharted territory,” Judge Martin Barash said, and because depositors’ funds aren’t the property of the Synapse estate, Barash said it wasn’t clear what his court could do.
Evolve has said in filings that it has “great pause” about making any payments until a full reconciliation happens. It has further said that Synapse ledgers show that nearly all of the deposits held for Yotta were missing, while Synapse has said that Evolve holds the funds.
“I don’t know who’s right or who’s wrong,” Moelis told CNBC. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
In the meantime, the former Synapse CEO and Evolve have had an eventful few weeks.
Pathak, who dialed into early bankruptcy hearings while in Santorini, Greece, has since been attempting to raise funds for a new robotics startup, using marketing materials with misleading claims about its ties with automaker General Motors.
And only days after being censured by the Federal Reserve about its management of technology partners, Evolve was attacked by Russian hackers who posted user data from an array of fintech firms, including Social Security numbers, to a dark web forum for criminals.
For customers, it’s mostly been a waiting game.
Craft, the Indiana FexEx driver, said she had to borrow money from her mother and grandmother for expenses. She worries about how she’ll pay for catering at her upcoming wedding.
“We were led to believe that our money was FDIC-insured at Yotta, as it was plastered all over the website,” Craft said. “Finding out that what FDIC really means, that was the biggest punch to the gut.”
She now has an account at Chase, the largest and most profitable American bank in history.
— With contributions from CNBC’s Gabriel Cortes. More

Move to San Francisco and it is hard not to be swept up by mania over artificial intelligence (AI). Advertisements tell you about how the tech will revolutionise your workplace. In bars people speculate about when the world will “get AGI”, or when machines will become more advanced than humans. The five big tech firms—Alphabet, Amazon, Apple, Meta and Microsoft, all of which have either headquarters or outposts nearby—are investing vast sums. This year they are budgeting an estimated $400bn for capital expenditures, mostly on AI-related hardware, and for research and development.In the world’s tech capital it is taken as read that AI will transform the global economy. But for ai to fulfil its potential, firms everywhere need to buy big tech’s AI, shape it to their needs and become more productive as a result. Investors have added $2trn to the market value of the five big tech firms in the past year—in effect projecting an additional $300bn-400bn in annual revenues according to our rough estimates, about the same as another Apple’s worth of annual sales. For now, though, the tech titans are miles from such results. Even bullish analysts think Microsoft will only make about $10bn from generative-AI-related sales this year. Beyond America’s west coast, there is little sign AI is having much of an effect on anything. More

Nikolay Storonsky, Revolut’s CEO and co-founder, said the company is feeling confident about securing its British bank license “soon”, after overcoming some key hurdles.
Revolut first applied for a U.K. banking license in 2021, but it has faced lengthy delays.
Revolut released annual accounts Tuesday showing its full-year pre-tax profit rose to $545 million in 2023; the company cited strong user growth and revenue diversification.

Nikolay Storonsky, founder and CEO of Revolut.
Harry Murphy | Sportsfile for Web Summit via Getty Images

LONDON — The boss of British financial technology giant Revolut told CNBC he is optimistic about the company’s chances of being granted a U.K. banking license, as a jump in users saw the firm report record full-year pre-tax profits.
In an exclusive interview with CNBC, Nikolay Storonsky, Revolut’s CEO and co-founder, said that the company is feeling confident about securing its British bank license, after overcoming some key hurdles in its more than three-year-long journey toward gaining approval from regulators.

“Hopefully, sooner or later, we’ll get it,” Storonsky told CNBC via video call. Regulators are “still working on it,” he added, but so far haven’t raised any outstanding concerns with the fintech.
Storonsky noted that Revolut’s huge size has meant that it’s taken longer for the company to get its banking license approved than would have been the case for smaller companies. Several small financial institutions have been able to win approval for a banking license with few customers, he added.
“U.K. banking licenses are being approved for smaller companies,” Storonsky said. “They usually approve someone twice every year,” and they typically tend to be smaller institutions. “Of course, we are very large, so it takes extra time.”
Revolut is a licensed electronic money institution, or EMI, in the U.K. But it can’t yet offer lending products such as credit cards, personal loans, or mortgages. A bank license would enable it to offer loans in the U.K. The firm has faced lengthy delays to its application, which it filed in 2021.
One key issue the company faced was with its share structure being inconsistent with the rulebook of the Prudential Regulation Authority, which is the regulatory body for the financial services industry that sits under the Bank of England.

Revolut has multiple classes of shares and some of those share classes previously had preferential rights attached. One conditions set by the Bank of England for granting Revolut its U.K. banking license, was to collapse its six classes of shares into ordinary shares.
Revolut has since resolved this, with the company striking a deal with Japanese tech investor SoftBank to transfer its shares in the firm to a unified class, relinquishing preferential rights, according to a person familiar with the matter. News of the resolution with SoftBank was first reported by the Financial Times.

2023 a ‘breakout year’

The fintech giant on Tuesday released financial results showing full-year pre-tax profit rose to £438 million ($545 million) in 2023, swinging to the black from a pre-tax loss of £25.4 million in 2022. Group revenues rose by 95% to £1.8 billion ($2.2 billion), up from £920 million ($1.1 billion) in 2022.
Victor Stinga, Revolut’s chief financial officer, said the company’s growth stemmed from a record jump in user numbers — Revolut added 12 million customers in 2023 — as well as strong performance across all its key business lines, including card fees, foreign exchange and wealth, and subscriptions.
“We consider 2023 to be what we would call a breakout year from the point of view of growth and profitability,” Stinga said in an interview this week.
Revenue growth was driven by three main factors, Stinga said, including customer growth, strong performance across its key revenue lines, and a significant jump in interest income, which he said now accounts for about 28% of Revolut’s revenues.
He added that Revolut made exercising financial discipline a key priority in 2023, keeping a lid on operating expenses and adopting a “zero-based budgeting” philosophy, where every new expense has to be justified and accounted for before it’s considered acceptable.
This translated to administrative expenses growing far less than revenues did, Stinga said, with admin costs growing by 49% while revenues nearly doubled year-on-year.
Revolut has been investing more aggressively in advertising and marketing, he added, with the firm having deployed $300 million in advertising and marketing last year. The company’s business banking solutions are also a top priority, with Revolut devoting about 900 employees toward business-to-business sales. More