Receiving Wide Coverage…
All Eyes on the Fed: Today's the day. Observers expect an announcement at the close of the Federal Reserve's Federal Open Market Committee meeting that will end the era of zero interest rates. The experiment with zero interest rates has neither been a complete disaster nor caused huge leaps in economic growth, the Wall Street Journal comments. But changing a not-entirely-successful policy has its own risks, of course. Raising interest rates isn't as simple as pushing the button: bankers at the New York Fed will aim to begin trading securities and cash with the country's large financial institutions in an effort to control the demand for money. (For a fun illustration of how the whole process works, check out this video from the New York Times that presents an interest rate increase in the form of a Rube Goldberg machine.) Not striking the right balance could cause problems in a wide variety of markets, from mortgages to car loans to the U.S. deficit. And has likely been overstated at this point: not everyone's a fan of higher interest rates. In particular, the U.S. industrial sector fears higher interest rates: a strong dollar and low commodity prices have sucked up demand for the services of companies like Caterpillar and Deere & Co, the Financial Times notes. The effects of an interest rate increase would only exacerbate those conditions, some argue, putting them further in a hole. Similarly, many emerging markets have struggled in recent months thanks to the same conditions, the Journal notes. And now countries like Mexico and Turkey will need to decide whether to keep rates low or join the Fed in a hike. But that could have disastrous effects ranging from harmful capital outflows on the one side and a recession on the other. But there's also hope: the U.S. boom period before the financial crisis helped push emerging market growth to an annual rate of 7.3%. And maybe they can strike gold again, if all goes according to plan.
Wall Street Journal
Banks are betting that oil prices will rise, but operating on such a hunch could cause them pain in the future. Lenders have been very lenient with energy company borrowers in recent months, even though there's currently no sign that the slump in energy prices will end soon. Energy companies expected that their lines of cred would be cut in the fall during the redetermination process that takes place twice a year. Instead, the paper reports that most lends set generous terms on the credit, while asking for more collateral against loans. The generosity stems from a long view on the industry: a recent survey of banks shows that most believe oil prices will rise in 2016. Still, the volatility makes energy borrowers a risky group – and lenders could find themselves with the proverbial egg in their faces if prices continue their downward spiral.
Messaging platform company Slack Technologies has set up an $80 million investment fund to support developers who create apps that integrate with its software. Already, the company has created a directory of support apps and new functions, which includes integration with Amazon Web Services. The young company faces stiff competition: Google, Microsoft, Atlassian and Salesforce.com are all developing their own collaboration software and apps to support such platforms. Still, Slack's got a large market – it has 2 million users, including over half a million who pay for its software.
The Italian government has been forced to defend the choices of the Bank of Italy and regulator Consob as questions grow over their regulation of the banking industry. The concerns stem from revelations regarding a potential mis-sale of subordinated debt to retail investors, the paper writes. The nearly $4 billion government-sponsored support of small lenders including Banca Marche, Banca Etruria, CariFerrara and CariChieti was aimed at hitting shareholders and junior bondholders, but not causing a bail-in. But among those facing losses as a result of the actions were retail customers, including pensioners, which could be a violation of E.U. law. The Italian government now faces calls to investigate for potential wrongdoing, while the country's opposition leads a proposed confidence vote against the government.
Australia is facing an unusual problem: the good times haven't stopped rolling. The country is facing its 100th consecutive quarter without a recession, even with troubles facing its mining industry. Unemployment is down, and residential home prices are up as a result of low interest rates. And there's even room to cut the rates further. And even though big Australian banks have raised mortgage lending rates to address higher capital requirements, they're still turning profits. But problems exist on the horizon that could make this happy period a sad one. Australia's strong markets are primed for international competitors to make their entrance, which could create more significant competition. And an increase in interest rates by the government could spiral into bad debts on banks' books. So Australia's financial services industry can still sit pretty, but should also be prepared to leap into action when the time soon comes.
New York Times
When Square went public, some of its merchants reaped the rewards thanks to a start-up. A platform called Loyal3 helped around 14,000 Square sellers to cash in on the initial public offering. Altogether, Loyal3, which deals with individual investors rather than money managers, allocated 5% of the IPO. And the investors Square garnered via Loyal3 are indeed loyal – only 3% have chosen to sell their shares, a remarkably high retention rate. Square chose to work with Loyal3 in a bid to serve its merchants further. This was only Loyal3's 15th such deal; previous ones include the IPOs of AMC Entertainment and pet food company Blue Buffalo. Merchants were able to purchase shares on a first-come-first-serve basis in amounts ranging from $100 to $2,500 – and with shares only down a little more than 4% since the IPO, merchants who bought in have definitely benefitted thus far.