Receiving Wide Coverage ...
Earning its Stripe
Payments processor Stripe raised another $250 million in a funding round, lifting its valuation to $35 billion, pushing it “closer to the top ranks of the highest-priced U.S. startups. The $35 billion valuation, up about 50% from an early 2019 funding round, puts Stripe above Silicon Valley darlings Airbnb and Palantir Technologies.” The company’s technology “allows internet companies and online marketplaces to accept credit cards for their goods and services and pay out money to the people and firms that sell on their platforms. It processes hundreds of billions of dollars in payments annually for millions of users.”
“The new fund-raising round makes Stripe more valuable than many public companies, including its competitor, Square, which was worth $10 billion less than Stripe on Thursday.”
Stripe President John Collison said going public is not planned.
Back for more
The Federal Reserve Bank of New York added another $75 billion to the financial system Thursday in the form of overnight repurchase agreements “to relieve funding pressure in money markets.” Banks placed bid for $83.875 billion in reserves, or nearly $9 billion more than what was offered, the Wall Street Journal reports.
The New York Fed plans to “repeat the operation on Friday,” making it the fourth day in a row this week the Fed has added funds to the market “as pressure mounted for the central bank to open a permanent facility to ease pressure on short-term lending.”
“Bank reserves are normally obscure, even to bankers and professional investors,” the Journal reports. “But this week they have hit the news when a shortage of them caused a key measure of borrowing costs — known as the overnight repo rate — to spike. That’s a worry, because typically these more wonky areas of finance only become interesting when something is going wrong.” The paper offers “a simplified rundown of what reserves are and how they have come to matter.”
The “whipsawing prices” in the repo market this week “have implications for the big, global effort to move off the Libor lending rate by the end of 2021,” the Financial Times notes. “The U.S.’s proposed alternative, known as SOFR, is based in part on repo rates. And as repo rates shot higher this week, so did SOFR, from 2.43% to 5.25%. So was it wise to base an alternative Libor on a market that can behave as capriciously as this?”
Financial Times
A bust
The European Central Bank’s “offer of cheap money for eurozone banks has turned out to be a damp squib, after the region’s lenders took up only €3.4 billion of the loans on offer — a fraction of the demand seen in previous auctions. Analysts said the unexpectedly low take-up in the first auction of the ECB’s latest targeted longer-term refinancing operation (TLTRO) reflected last-minute changes to their terms and the tactical advantages that banks may see in waiting until the next round.”
It’s “no wonder” that the eurozone’s beleaguered banks aren’t interested in the ECB’s revived quantitative easing program that pays a negative 0.5%, the paper says. “Lenders currently hold about €2 trillion of deposits at the ECB — and every 0.1% move further into negative territory wipes €2 billion off their income.”
“If the ECB is serious about stimulating the economy — the very reason it relaunched QE — then accompanying that policy with measures to get the banks working as part of the stimulus effort is logical. For too long the eurozone’s banks have been part of the problem, rather than part of the solution.”
Progress
Alison Rose has been named CEO of Royal Bank of Scotland to “become the first woman to lead one of the UK’s top banks.” She will succeed Ross McEwan starting in November. “The state-owned lender will also become the only company in the FTSE 100 index with women in both its top two executive positions, following Katie Murray’s appointment as chief financial officer last year.”
Buying opportunity
“There is a coterie of investors who think that the panic about growth and rates has created a buying opportunity” in bank stocks. Chris Davis of Davis Funds, for example, “argues that at the strongest of the big banks a combination of cost cuts, asset growth and share buybacks will be more than enough to offset the headwinds from low rates.”
Elsewhere
Considering options
Some senior officials at Deutsche Bank “have discussed the possibility of putting additional problematic assets worth billions of euros into a unit it created earlier this year, if the bank is able to sell assets already held within that ‘bad bank,’ Reuters reports. A Deutsche Bank spokesman said the bank has no plans to add additional assets into the so-called capital release unit, or bad bank. Nevertheless, it is one of the options that has come up for discussion at the highest levels at the bank, as executives grapple with the problem of having to turn around the bank on a tight budget. Deutsche Bank needs more capital to be able to absorb the losses that will likely come from shedding problematic assets, such as long-dated derivatives, that are still on its books.”
Quotable
“Yeah, it’s safe. I mean, sure. Why not?” — President Trump, responding to a reporter’s question if Federal Reserve Chair Jerome Powell’s job was safe after the Fed cut interest rates by 25 basis points on Wednesday
