Editor's note: Morning Scan will not publish on Monday, Oct. 12 in observance of the Columbus Day holiday. We’ll be back on Tuesday, Oct. 13.
Receiving Wide Coverage ...
The Fed’s Frenzy: The Federal Reserve released the minutes from its latest meeting, which gave observers clues as to why it decided not to raise interest rates. One of the big reasons Fed officials cited, according to the Wall Street Journal, was a concern that inflation is still worryingly low.
But wait — could the real reason have been foreign markets? It seems that low inflation drove the ultimate decision, but underpinning those inflation-related concerns was weak global growth, the New York Times points out. But those concerns were relatively near-term ones, the Fed notes in its minutes, indicating a rate hike may not be that far off. Whatever pushed the Fed to keep rates low, according to CNBC the meeting minutes demonstrated the importance of markets in the central bank’s calculations. Yellen has pushed for a “data dependent” slant to the Fed’s decision-making. But despite a healthy labor market and few concerns regarding deflation, the Fed took a cautious approach reflecting global market turmoil.
Of course, it’s easy to be a Monday morning quarterback. As Reuters reports, Morgan Stanley’s James Gorman thinks rates should have been raised in March.
Goodwill Hunting? Deutsche Bank and UBS’ recent woes could be a lesson to American banks about how pre-crisis behavior can come back to haunt them. Before the crisis, the universal banking model reigned supreme, leading many big banks to expand their empires. But now some are facing problems stemming from that expansionary fervor, according the Journal. Deutsche Bank reported a loss of 6.2 billion euros in the third quarter after costs skyrocketed to 7.6 billion euros, the Financial Times writes. Much of those expenses — about 5.8 billion euros — came from goodwill losses.
In particular, as the German bank looks to sell its Postbank subsidiary, it’s realized the division is worth far less than it thought. Consequently, the bank is now in a difficult position and mulling a suspension of its dividend for the first time since World War II. And goodwill could become an issue at U.S. banks as well. As the Journal reminds us, Bank of America still carries around $70 billion in goodwill, meaning similar goodwill impairments could strike closer to home. What’s more, with changes to regulatory requirements, banks are sobering up to the reality they may never make as much as they did in the pre-crisis era. And that means it’s time for more self-evaluation, like Deutsche Bank just did.
Wall Street Journal
Marketplace lenders are beginning to show some growing pains, the paper reports. Companies like LendingClub and On Deck Capital present themselves as disruptors to traditional banks, but it’s become clear that all this disruption comes at a price. The Journal notes that while these companies have raked in record revenue in the past year, their marketing and sales expenses have risen in turn. Plus, future margins could grow tighter with the entry of more competitors, making these companies a risky bet for investors.
Payments processor Worldpay appears to be nearing an initial public offering, one that is expected to be quite profitable, the paper writes. The company said it expects its valuation to come in around 4.9 billion pounds, or roughly $7.5 billion. And with the British company’s current owners, Advent International and Bain Capital, narrowing its target price range for its share value, the IPO is set to be the largest in the UK in two years.
Upstart credit rating systems in China have raised fears of an Orwellian future. The paper reports that in China, the lack of a credit rating database has pulled in many Internet companies. But rather than just base credit scores on consumers’ finances, some companies have also begun to factor their social networks into the mix. For instance, one company, Sesame Credit, appears to reward consumers for posting about their credit scores. Analysts have described the situation as “nightmarish.”
Italian bank UniCredit’s chief says no one has made him an offer he can’t refuse, according to the paper. Fabrizio Palenzona has denied any connections to Sicilian Cosa Nostra organized crime after Italian anti-mafia authorities raided his offices and prosecutors opened an investigation into his activities. Nevertheless, Palenzona faces a possible two-month suspension as a result of the inquiries.
CNBC: Cameron and Tyler Winklevoss made an appearance on the TV network’s “Power Lunch” series to defend their latest venture, the Gemini Bitcoin exchange. The brothers said they designed the exchange with security in mind in an effort to avoid problems the digital currency has faced, such as ties to the Silk Road online black market. Additional security precautions include high capitalization requirements and anti-money laundering protections.