Rise of the neobank

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0:32Good morning from the Financial Times. Today is Tuesday, July 1st, and this is your FT News Briefing. Middle East oil giants tap the brakes on their buying binge. And U.S. stocks are back to beating out European equities. Plus, the buy-now-pay-later startup Klarna is getting a makeover. I'm Sonia Hudson, and here's the news you need to start your day.

1:05Two of the Middle East's biggest state-owned oil companies are pulling back on investments. Saudi Aramco and Abu Dhabi Oil Company, or Adnok, have plowed tens of billions of dollars into acquiring businesses in recent years. But now, lower oil prices are starting to bite, and the two giants are slowing down that buying spree. Benchmark crude has fallen below$80 a barrel since January, and analysts expect that oversupply in the market will push prices down even more. One energy banker said that Adnok and Sadia Ramco have been told to focus more on dividends and less on growth.

1:52It's been a roller coaster year for U.S. stocks. The S &P 500 tanked back in April, right after U.S. President Donald Trump announced his so-called Liberation Day tariffs. So everyone turned their attention to European stocks. But the U.S. index has boomed since then. It's recovered all of its losses. Meanwhile, the dollar has seen its worst start to the year in decades. So what gives? My colleague Ian Smith is here to shed some light. Hi, Ian. Hi, Sonia. So give me a quick recap of the start of the year. Investors saw all this tariff turmoil in the U.S. and instead they look to Europe for more stability.

2:37What was the thinking there? Yeah, you saw a bit of a shake to investor confidence in the U.S. at the start of the year from concerns about economic policies of Donald Trump's second presidency. And you saw European stocks outperform as Europe kind of pulled itself together and united around this common trade foe. So you had this optimism on Europe and worries about the economic impact of the tariffs on the U.S. that really pushed Europe up and pulled the U.S. back. Yeah, but now we are seeing Wall Street catching up to Europe. What caused the change in fortune? Yeah, so it has been a remarkable turnaround since the April low for US stocks in the market fallout from the Liberation Day tariff announcement.

3:26And why has that gap narrowed? Partly because that trade war fear has abated somewhat, partly because there's been stronger earnings momentum for US tech. And you've had growing hopes of more interest rate cuts coming from the Federal Reserve. So all of that has pushed risk-focused investors back to US market and back to that bet on tech. And at the same time, on the European side, some of that early optimism in the year has yet to significantly feed through into any kind of productivity gain for European companies. And you've seen European stocks struggle to keep up with their US peers. So the S &P 500 is up more than 10 % in the second quarter, and the Europe's region-wide Stock 600 is up less than 2%.

4:09But at the same time that Wall Street stocks are seeing this big recovery, the dollar, on the other hand, like I mentioned, is actually pretty weak. How do I square those two things? So one important reason is that the market has moved to price in more interest rate cuts from the Federal Reserve, as I said. So now five are expected, at least five, by the end of next year. So that has the effect of pulling down on the dollar and at the same time, improving the outlook for the corporate sector and for economic growth. lifting stock prices. The dollar has also been a lightning rod for some of the wider concerns that investors have about US policymaking, the high sovereign debt and the potential for that to be made much worse.

4:51The fiscal picture by the big, beautiful tax bill currently going through Congress, also concerns about risk to Federal Reserve independence. So the dollar can be kind of the whipping boy, as one investor put it to me, for those wider concerns about the U.S. and the direction of the U.S. economy, even as stocks continue to rise, investment case is still very strong. So then is this split screen that we're seeing between Wall Street and the dollar just a matter of timing, kind of like a long, short thing? I think it's a couple of things. I think it's partly equities versus bonds. On the equities side, still when investors are looking for growth, they are kind of returning to the U.S.

5:34And then on the bond side, yes, some investors have been concerned about rising US government debt and what that means for the sustainability of that debt. And there you have seen flows into European sovereign debt. It might be a case of different investors. It might be a case of global investors versus domestic investors, because a lot of that US stock rally has been retail investors buying the dip and also US companies in record numbers buying back their shares. So there's a few different dynamics that I think explain why U.S. stocks are performing well while the dollar continues to sour. Ian Smith is the FT's senior markets correspondent.

6:11Thanks, Ian. Thank you.

6:19President Donald Trump lifted most U.S. sanctions on Syria yesterday. The White House said it would give the country the chance to rebuild its economy after more than 14 years of civil war. Rebel groups ousted dictator Bashar al-Assad late last year. The sanctions relief is a vote of confidence in the country's new leader, Ahmed al-Shara. It's also a big shift in U.S. policy. Washington had designated Shara's Islamist movement as a terrorist organization because of its past ties to al-Qaeda. But American officials said the U.S. could still keep sanctions where appropriate, including against Assad, who's in exile in Russia.

7:06The fintech startup Klarna wants to revamp its business model. The Swedish company is known for offering interest-free loans to online shoppers. But after a failed attempt to go public earlier this year, it's making some changes. Here to tell me what that says about the wider digital banking industry is the FT's Akilah Kino. Hi, Akilah. Hey. So tell me about Klarna's plans to shake up its business model. This is a company that's known for its buy now, pay later approach. What's it trying to change? So it's trying to diversify away from being a pure buy now, pay later platform. and pure BNPL looks like installment loans that are offered to consumers when they're purchasing items online typically and those loans are interest-free and so things is kind of adding to the suite of products they're offering are things like a U.S.

8:02debit card which they launched in June in partnership with Visa. It's also moving towards things like regular credit cards and so it's doing all of this to position itself as a digital bank or a neobank. Okay, so Klarna wants to become more than a buy now, pay later platform. What is motivating the turn away from its original model? So there are a couple of things. The original model has come under pressure. So at its peak, Klarna was Europe's most valuable startup. But when interest rates went up a few years ago, that kind of put pressure on its models because its funding became more expensive.

8:44and also it's never really been tested in a downturn. So, you know, there are fears of rising defaults among customers, which would force it to be more conservative in its lending and grow less. And then there's another thing, which is that actually we're seeing a lot of players trying to become full-service neobanks. And that's the kind of segment of the market that's become attractive to investors in recent years and that has had huge successes with Revolut being an example. Okay, so we've got some pressures on the actual business model and also increased competition, sounds like. And Akilah, I mentioned earlier that Klarna's first IPO attempt failed.

9:28What happened there? Yeah, so I mean, it failed in the sense that it didn't even get to IPO. So the company had been ready, had filed everything with the Securities and Exchange Commission, and then what the U.S. President Donald Trump calls Liberation Day happened. Klarna was forced to pull its IPO because markets were just in too much turmoil. So it's been paused. And now they're trying to figure out when the best time is to try an IPO in the U.S. again. What do you think Klarna's move says about the digital banking sector as a whole right now? Well, I've spoken to analysts who said, you know, So it's no coincidence that they're really highlighting that business model because one of the successful listings we've seen happen in the U.S.

10:14since Liberation Day has been the one of Chime, which is a digital bank in the U.S. that primarily serves underbanked customers. And when interest rates went up, the fintech sector in general faced a fundraising drought where there was less investment, valuations got cut. And then recently, we've kind of seen one specific segment emerge out of that, and that's been neobanks. However, it's really hard for companies to decide how to be strategic around when to go enlist. Because, you know, a company like Klarna could think, let's go after the summer, pick a date, commit to it. But who knows what could happen in two months, right?

10:55Announcements could drop, and there's a lot of uncertainty right now about the U.S. economic policy. Akilah Quino is the FT's U.S. banking correspondent. Thanks, Akilah. Thanks.

11:12You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

11:32The new episode of The Next 5 podcast is all about AI sovereignty. Stefan Israel at AWS joins me. Digital borders shall not become digital walls which are not interconnected. As does Catherine DiLorenzo at A &O Sherman. It looked like a race to write the rulebook and not just a race to build the most powerful technology. And Ali Usten at McKinsey. Sovereignty anchors data centers, engineering and AI talent in the country. Listen to The Next Five wherever you get your podcasts. Enjoy. Capital raising is being redefined in real time, from macro disruptions and shifting investor expectations to AI-driven demand and the rise of private credit.

12:12When headlines can tilt markets overnight, how can companies stay on course? Strategic Alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts.