On Wall Street: Banks no longer so lucrative

Financial Times ^ | 7/3/09

[FromLori]

Now private equity is an eager if frustrated buyer of troubled banks in the US and one of the few sources of fresh equity for a sector that desperately needs capital. US authorities are as paranoid as their Japanese peers of these would be owners’ intentions and intend to impose onerous requirements, (which may or may not prove very burdensome) on private equity. At the same time, regulators also intend to impose all sorts of constraint on the banks and limit the degree of leverage all banks are allowed, which will likely lead to lower profitability.

Given all the new shackles, why would anybody want to own a bank these days?

Partly because, in spite of the new constraints, banking ought to be the most simple, guaranteed profitable business under the sun. Moreover, during hard times, the Fed tries to help banks support the economy by providing cheap funds that the owners then turn round and lend at a guaranteed spread over what they paid for the funds. Owners essentially get to control the profit level by deciding how much money to tuck away for a rainy day in the form of loan loss reserves.

Also, for private equity, these days owning a bank is particularly attractive because there isn’t much else to buy, for the simple reason that there isn’t much debt around. Banks are innately leveraged, making it possible to make decent returns even if the private equity firms have to put down a lot of their own money.

The desire to buy banks assumes a normal environment. But these days aren’t exactly normal economic times and there isn’t much new net lending. The authorities have been leaning on the banks to turn on the credit tap, but they are resisting.

[anniegetyourgun]

7 down in one day yesterday.

[taxtruth]

Bankers in America are deadmeat.The big rat of all time is THE FEDERAL RESERVE.The biggest kingpin in the history of the world that has taken America to it's knees.We will end the fed or the fed will end America.

[FromLori]

http://www.globalresearch.ca/index.php?context=viewArticle&code=BRI20090630&articleId=14178

[taxtruth]

Hey,I know you read John Perkins book.Great book.

[Shermy]

“and intend to impose onerous requirements,”

This is silly. All Obama has proposed are fig leafs. Clearly he is OKing the continuation of the big bank derivative game, which is the cause of much the risk and instability.

His administration no longer hides that the “big banks” are treated seperately than others.

Today 7 banks were so-called nationalized. The big players get bailouts instead.

[mysterio]

Thanks to fascism, Goldman Sachs seems to be doing just peachy.

[ken21]

gosh, i wonder why?

citi’s trading at $5.27.

[FromLori]

Did you see all the articles Taiibi did on government sachs?

lol

http://trueslant.com/matttaibbi/2009/06/30/on-giving-goldman-a-chance/

[FromLori]

No I have not title?

[bunster]

You posted the other day re: the ONE entity that borrowed at 7% — the next day the market lost 230 points. I’m not a financial whiz but like your posts — was there any connection or am I far afield.

[FromLori]

You know bunster I honestly had forgotten about that article now that you bring it up it was a denninger piece I do not know the answer but now I am wondering. My other thought was AIG I will have to go back and find that article though I am not certain it specified who but great observation on your part.