Fed Acknowledges Recession Risk; Cleo Raises $80Mn; BlockFi Gets Credit Line

PeerIQ Analytics Platform
5 min readJun 27, 2022

Greetings,

Fed Chair Powell testifies. Home prices hit a record. Gas tax holiday on the table. FDIC proposes raising insurance assessments. Cleo raises $80Mn. Auto loan delinquencies on the rise. Circle keeps hiring. Klarna valuation could fall by two-thirds. BlockFi secures $250Mn credit line.

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Rate Hikes May Cause Recession, Fed Chair Acknowledges

Fed Chair Jerome Powell testified to Congress last week. In his testimony, he reinforced that the Fed would continue hiking rates until there is compelling evidence that inflation is slowing. Powell acknowledged the challenge of achieving 2% inflation while maintaining a strong labor market and admitted a recession is a possibility.

Meanwhile, rising rates have done little to cool housing prices. Existing home sale prices hit a record of $407,600 in May.

Soaring gas prices mean consumers are facing pain at the pump. The Biden administration is seeking to offer a little relief. It has proposed a three month pause in federal gas taxes. The proposal would reduce prices by $0.184 a gallon on gasoline and $0.244 on diesel, if the reductions are fully passed along to consumers. The move would be a slight boost to household’s budgets, particularly for lower-income consumers.

FDIC Proposes Raising Assessment, Reinstate Analysis of Underbanked

Despite the fact that pandemic-related benefits ended some time ago, banks are still facing substantially elevated levels of deposits compared to before the pandemic. Growing deposits has meant that the FDIC’s reserve ratio has declined to 1.23% as of March. That’s significantly below the statutorily required minimum of 1.35%.

To begin to address the gap, the FDIC is proposing raising deposit insurance assessment rates by 2 basis points for all insured institutions. The proposal is likely to receive pushback from banking groups, particularly with the looming threat of a recession.

In other FDIC-related news, the agency is planning to reinstate analysis of “underbanked” consumers to its biannual unbanked survey. “Underbanked” typically refers to consumers who have a traditional bank account but also use services like money orders, check cashing, and payday loans.

Trump-appointee Jelena McWilliams eliminated the underbanked analysis during her tenure. She argued that the term is inherently subjective, and that the definition used by the FDIC itself had changed five times during the span of six reports.

Financial Assistant App Cleo Raises $80Mn

Cleo, a “financial assistant” app targeting Gen Z consumers, raised a fresh $80Mn and saw its valuation increase to $500Mn. The U.K.-based company has expanded into the U.S., which it is now focusing on as its primary market. The company plans to use the funds to expand the scope of services it offers. And, unlike many other fintechs these days, Cleo plans to continue hiring. It expects to grow from its current 140 employees to 220 by the end of the year.

Auto Loan Delinquencies Tick Up

Consumer credit continues to normalize after seeing delinquencies drop during the pandemic. Delinquencies in auto loans ticked up last month. Deterioration is happening more quickly in the subprime segment. In May, roughly 7.25% of nonprime loans were 30 to 59 days late, up from 5.20% the year prior. With the seasonal impact of tax refunds in the rearview mirror and inflation continuing to bite, analysts expect the trend to continue.

Image: American Banker

Circle Bucks “Crypto Winter” Trend, Plans to Continue Hiring

With crypto prices tanking and valuations slashed, many crypto companies have frozen hiring or begun layoffs. Circle, which issues the USDC stablecoin, is bucking that trend. The company’s COO, Elisabeth Carpenter, recently highlighted Circle’s resilience in the face of a challenging operating environment. She said the company plans to continue to “hire strategically” over the next 18 months.

For companies that are well-positioned, the hiring environment seems to be shifting in their favor.

Klarna Cuts Fundraising, Valuation Target, Launches Loyalty Card Feature

Klarna, once the most valuable fintech in Europe, is reportedly in discussions to raise $500Mn in a round that would see its valuation drop to just $15Bn. Its most recent fundraising round, led by SoftBank’s Vision Fund 2, saw Klarna valued at $46Bn.

Klarna, which was founded in 2005, began spending aggressively as it expanded dramatically amidst the pandemic and a surge of consumer interest in buy now, pay later. Its losses grew significantly, quadrupling in Q1 2022 vs. the year prior, to about $250Mn. The firm recently laid off 10% of its staff, citing the “volatile” economic environment.

Still, Klarna is continuing to roll out new features. The company recently added a loyalty card feature to its app, which enables users to store and access physical store loyalty cards. The capability is part of Klarna’s strategy to drive engagement by serving not only as a payment option, but as a hub for all things shopping-related.

BlockFi Secures $250Mn “Bailout” from FTX

With the fate of Celsius Networks still uncertain, another crypto lender has secured a $250Mn credit line from fellow crypto company FTX. BlockFi entered into the agreement in order to bolster its balance sheet and “platform strength,” according to a statement from CEO Zac Prince.

BlockFi had exposure to crypto hedge fund Three Arrows Capital, which had positions liquidated as crypto prices plummeted in recent weeks. BlockFi reportedly has been struggling to secure additional equity funding even at a reduced valuation, according to The Block.

As the repercussions of Terra’s collapse and falling prices continue to reverberate through the ecosystem, there is likely more pain to come in some corners of the crypto ecosystem.

In the News:

Delaying CFPB’s Data Sharing Rule Will Only Create More Problems Down the Road (American Banker, 6/20/2022) It’s been 12 years since Congress initially granted the CFPB the power to provide U.S. consumers and small businesses a formal financial data right, but this right has not been established.

The Broad Implications of Pat Toomey’s Standoff with K.C. Fed’s President (American Banker, 6/19/2022) The standoff is in regard to a debate over the revocation of the master account granted to payment services company Reserve Trust.

U.S. Proptech HomeLight Acquires Accept, Raises $115m at $1.7bn Valuation (Fintech Futures, 6/20/2022) Accept is an iLender or “tech-enabled lender” that gives homeowners the opportunity to submit all-cash offers on a home.

Cross River Bank Hires Crypto Compliance Chief From Robinhood (Wall Street Journal, 6/16/2022) Melnicki has also held positions at Grayscale Investments, Ripple Labs and Blockchain.com.

Credit Karma Introduces New Cash Back Rewards Program for Debit Consumers (Tearsheet, 6/21/2022) Credit Karma will offer instant cashback for purchases made at Cardlytics partner merchants, which include stores like Adidas and Shake Shack.

Why Did Brex Really Decide to Ditch SMBs? (Tech Crunch, 6/19/2022) Just 3 months after announcing it’d make a big push into software and enterprise, Brex confirmed it’s abandoning SMBs, a segment it started out to serve.

ETF That Bets Against Bitcoin to Launch (Wall Street Journal, 6/20/2022) ProShares to rollout the first U.S.-listed short bitcoin futures ETF.

Crypto’s Frozen Mystery: The Fate of Billions in Celsius Deposits (Washington Post, 6/21/2022) The crypto world is waiting to see if Celsius restructures or declares bankruptcy.

Crypto Companies Pull Back on Marketing After Their Super Bowl Blitz (Wall Street Journal, 6/20/2022) Since November, overall ad spending by big crypto brands has plunged 90% or more.

Lighter Fare:

​​Scientists Unveil Bionic Robo-Fish to Remove Microplastics from Seas (The Guardian, 6/22/2022) Some good news to counter one of our largest environmental problems.

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PeerIQ Analytics Platform

PeerIQ, a Cross River company, offers online Software as-a-Service risk analytics for owners and operators of consumer credit risk.