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So the headlines from a few days ago, the investment arms of some banks made some money.

Quietly buried, the massive write downs, bad debts, total collapse of consumer lending etc etc

But what 'investments' exactly have been so profitable for the banks? (twice as profitable as during the height of the boom)

Is it just the stock market? Or doubling up on derivatives?

Does anyone know just how these banks made this money, because it sure as hell wasn't in the real world. Is there a papertrail going all the way back to the bailout money poured in or is this actually genuine investment somewhere?

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So the headlines from a few days ago, the investment arms of some banks made some money.

Quietly buried, the massive write downs, bad debts, total collapse of consumer lending etc etc

But what 'investments' exactly have been so profitable for the banks? (twice as profitable as during the height of the boom)

Is it just the stock market? Or doubling up on derivatives?

Does anyone know just how these banks made this money, because it sure as hell wasn't in the real world. Is there a papertrail going all the way back to the bailout money poured in or is this actually genuine investment somewhere?

Well in this country, banks are buying Government debt and the Bank of England is printing money to buy that debt from them, with the banks making a percentage profit on the transaction.

I believe this is also happening in the US.

All this is doing is delaying the inevitable, but of course we are supposed to believe that it constitutes 'economic recovery'.

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So the headlines from a few days ago, the investment arms of some banks made some money.

Quietly buried, the massive write downs, bad debts, total collapse of consumer lending etc etc

But what 'investments' exactly have been so profitable for the banks? (twice as profitable as during the height of the boom)

Is it just the stock market? Or doubling up on derivatives?

Does anyone know just how these banks made this money, because it sure as hell wasn't in the real world. Is there a papertrail going all the way back to the bailout money poured in or is this actually genuine investment somewhere?

AFAIK, Llloyds BG MBS prices have risen slightly and because LLoyds has sh*tloads of MBS kept on their balance sheet, the total value of their MBS portfolio became less crappy. This was reported as profit.

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Well in this country, banks are buying Government debt and the Bank of England is printing money to buy that debt from them, with the banks making a percentage profit on the transaction.

I believe this is also happening in the US.

All this is doing is delaying the inevitable, but of course we are supposed to believe that it constitutes 'economic recovery'.

Do you have any evidence for that?

If the only profit the banks are making is from playing with make believe instead of in the real world then they are all effectively zombie banks with a lot of make up on.

I was hoping one of the bankers on here could go into a bit more detail for us ;)

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Well in this country, banks are buying Government debt and the Bank of England is printing money to buy that debt from them, with the banks making a percentage profit on the transaction.

I believe this is also happening in the US.

All this is doing is delaying the inevitable, but of course we are supposed to believe that it constitutes 'economic recovery'.

....and that freshly printed cash is going somewhere. Can't think where.

Oh hasn't the FTSE been doing well recently? Fancy that.

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So the headlines from a few days ago, the investment arms of some banks made some money.

Quietly buried, the massive write downs, bad debts, total collapse of consumer lending etc etc

But what 'investments' exactly have been so profitable for the banks? (twice as profitable as during the height of the boom)

Is it just the stock market? Or doubling up on derivatives?

Does anyone know just how these banks made this money, because it sure as hell wasn't in the real world. Is there a papertrail going all the way back to the bailout money poured in or is this actually genuine investment somewhere?

At the G20 one of the action that they took away (other than getting the media on side for a propoganda led "recovery") was that GS was going to lead the stock market back up. Obviously the UK banks were in on it as well and they have had one of the best runs up in history.

Even on the radio this morning they said RBS made a small profit due to equity trading and counterbalancing the massive writedowns still going on.

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AFAIK, Llloyds BG MBS prices have risen slightly and because LLoyds has sh*tloads of MBS kept on their balance sheet, the total value of their MBS portfolio became less crappy. This was reported as profit.

House prices falling, defaults rising and MBS prices are up? :blink:

I'm guessing as soon as the bounce ends, back to massive losses then?

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AFAIK, Llloyds BG MBS prices have risen slightly and because LLoyds has sh*tloads of MBS kept on their balance sheet, the total value of their MBS portfolio became less crappy. This was reported as profit.

It can work the other way too.

If a bank owes £100, but because the bank is crap, that debt is only worth £50, the bank can make a £50 profit by buying it back @ £50.

Also, if the banks debt is downgraded, it might only be worth £40. this means the bank has made a £10 profit as it can now buy the debt back for £40 instead fo £50.

Bonuses all round!!!

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House prices falling, defaults rising and MBS prices are up? :blink:

I'm guessing as soon as the bounce ends, back to massive losses then?

Hence QE programme extended?

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....and that freshly printed cash is going somewhere. Can't think where.

Oh hasn't the FTSE been doing well recently? Fancy that.

I've been wondering recently if some of those crisp new notes could have found their way into real estate to keep asset prices elevated. Does anybody know how the likelihood of this, and if so, by what mechanism?

Edited by RajD

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I've been wondering recently if some of those crisp new notes could have found their way into real estate to keep asset prices elevated. Does anybody know how the likelihood of this, and if so, by what mechanism?

I think it was Sky News the other day that mentioned about 55% of bankers bonuses gets invested into property.

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....and that freshly printed cash is going somewhere. Can't think where.

Oh hasn't the FTSE been doing well recently? Fancy that.

I think the idea is that this means the banks have more money to lend to businesses,

but solvent businesses don't want to lend and banks don't want to lend to insolvent businesses.

So the money is being used to improve banks balance sheets.

Big bonuses all round!

Effectively the BOE is printing money and giving it to the Government who are using it to prop up the 'real' economy.

How long this can go on for is anyones guess.

Nu Labour are obviously hoping it will give the appearance of an economic recovery until the election is over.

Then whoever wins, the sh1t hits the fan with a vengance.

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Don't know why everyone keeps getting stressed about this really.

The Government, with the help of the BOE, WILL engineer some sort of mini-boom before the next election.

The BBC WILL do its absolute utmost to convince the masses that the recession is over thanks to the brilliant efforts of the 'Great Leader'.

At the end of the day IT DOESN'T MATTER, because whoever wins the next election we are going to get at least 10-15 years of austerity in this country.

If the Conservatives win in 2010, the pain will begin straight away.

If Labour wins, another 5 years will be pissed up the wall and then the pain will begin, but much, much worse.

The choice is ours!

:blink:

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I think it was Sky News the other day that mentioned about 55% of bankers bonuses gets invested into property.

Well if that's the case I'll be praying for 50% further falls :P

But seriously, even if these bonuses are going into property, surely it wouldn't have that much of an effect? Mortgage lending is currently around £12 billion a month. Bankers' bonus payments would be a tiny fraction of that.

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Banks are making a lot more money out of trading and facilitating client trading than they did over the last few years, that is the main source of it.

A few examples.

An asset manager wants to buy gilts, he calls Goldman, gets an offer in 200mio gilts or whatever, and buys them. Goldman then either buy them cheaper out of the market, or from another client, or they keep the position and maybe put it on against another gilt as a trading position.

If (which it quite often does as these are smart people) that trading position then moves in their favour, they make money.

Alternatively a company wants to borrow money, it pays an advisory fee as well as probably some sort of commission on the amount of money raised.

Or a smaller bank wants to use an interest rate swap to hedge the interest rate risk on a loan or mortgage. They come to Goldman which quotes them a custom-made over the counter derivative to hedge the risk. It then hedges in more plain vanilla instruments, pocketting a spread.

Make sense?

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Banks are making a lot more money out of trading and facilitating client trading than they did over the last few years, that is the main source of it.

A few examples.

An asset manager wants to buy gilts, he calls Goldman, gets an offer in 200mio gilts or whatever, and buys them. Goldman then either buy them cheaper out of the market, or from another client, or they keep the position and maybe put it on against another gilt as a trading position.

If (which it quite often does as these are smart people) that trading position then moves in their favour, they make money.

Or a smaller bank wants to use an interest rate swap to hedge the interest rate risk on a loan or mortgage. They come to Goldman which quotes them a custom-made over the counter derivative to hedge the risk. It then hedges in more plain vanilla instruments, pocketting a spread.

Ok.

Alternatively a company wants to borrow money, it pays an advisory fee as well as probably some sort of commission on the amount of money raised.

Make sense?

Not Ok.

It would seem at the moment that lending to companies & individuals is way down, so are banks crucifying any companies they are lending to, thus making more profit or were you talking about generalised 'how do banks make money'?

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Ok.

Not Ok.

It would seem at the moment that lending to companies & individuals is way down, so are banks crucifying any companies they are lending to, thus making more profit or were you talking about generalised 'how do banks make money'?

Sorry, that was if a bank ARRANGED finance i.e. via a bond deal or a syndicated loan.

If the bank was just lending money direct it would just charge an interest rate on it, and maybe a small upfront admin charge like you would have on a mortgage or personal loan.

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Ok.

Not Ok.

It would seem at the moment that lending to companies & individuals is way down, so are banks crucifying any companies they are lending to, thus making more profit or were you talking about generalised 'how do banks make money'?

Yes they are. The spreads over LIBOR on new borrowings are 4x what they were back in 2005 (admittedly in 2005 they were lower than our now treasurer had ever seen in his 40 years in that job and he told me then that spreads that thin would take a bank or 2 out before long - he thought HBOS......). Fees were practically non-existent in 2005, now 100bps up front is common. The reason corporates loans are contracting is because corproate investing has collapsed, partly due to high interest rates; if people really want to know why jobs are being shed, it isn't entirely due to lack of demand.

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House prices falling, defaults rising and MBS prices are up? :blink:

I'm guessing as soon as the bounce ends, back to massive losses then?

They thought about this scenario too and that's why banks are bidding high on own foreclosures/repos. Triple win for the banks:

1/ a record for the price paid is created which is included in LR/<whatever they use in USA> indices

2/ a "pretend" performing mortgage is created which lifts Haliwide index and "loans approved for house purchase" numbers

3/ for these "pretend" mortgages, banks don't care about hedging, ability to repay or interest rates anymore and keep the their savings rate low

Bonuses all round indeed! :lol:

Edited by matroskin

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