http://bit.ly/7XwAG
“Banks periodically go crazy,” said Warren Buffett “It’s always on the asset side.” The world's most revered investor was pointing to a trend of asset acquisition that has been haunting most US Banks since the last few years.Buffet who recently increased his stake in Wells Fargo by nearly 5% to 358.9 million shares was speaking at the Annual General Meeting of Berkshire Hathaway With Banks trying to re model themselves from money lending institutions to investing organisations, the net lending , the revenue and profitability of the top six US Banks fell by a mammoth 13.3% in the first quarter of the year, as compared to the year before.
What went up was asset acquisition. The Banks saddled with toxic assets from sub-prime mortgage days were given more than $2 Trillion by the Federal Reserve through the TARP and QE2 after the 2008 crash to clean up their balance sheets and keep injecting liquidity in debt markets. However instead of lending in the dormant US markets, the Banks utilized the money to invest in emerging markets and buy up commodities and metals. This helped them to strengthen the asset side of the balance sheet , so that the housing mortgage bad loan component became marginal by comparison.
While prima facie this looked a brilliant move the real problem is that it pits the banks in direct competition to the traders community who are infinitely more capable of making deals with end users of the commodities. Now that the Banks are in the game with their money power,they must get into day to day trading and hire specialists in each field to carry out transactions and move stocks. Prices of commodities and metals have already becPublish Postome sky high affecting demand trends. Now they must keep selling what they are holding to ensure that markets are liquid. Or they must keep holding the stocks like a warehousing company and wait for the canny traders to pick up their holdings which are already moving slowly due to high pricing.
Whoever said warehousing profits were higher than lending ? Warren Buffet is unhappy as he is already feeling the pinch as the largest investor of Banking stocks. The future may see him disinvest in the asset fixated Banking sector if the trend continues.
“Banks periodically go crazy,” said Warren Buffett “It’s always on the asset side.” The world's most revered investor was pointing to a trend of asset acquisition that has been haunting most US Banks since the last few years.Buffet who recently increased his stake in Wells Fargo by nearly 5% to 358.9 million shares was speaking at the Annual General Meeting of Berkshire Hathaway With Banks trying to re model themselves from money lending institutions to investing organisations, the net lending , the revenue and profitability of the top six US Banks fell by a mammoth 13.3% in the first quarter of the year, as compared to the year before.
What went up was asset acquisition. The Banks saddled with toxic assets from sub-prime mortgage days were given more than $2 Trillion by the Federal Reserve through the TARP and QE2 after the 2008 crash to clean up their balance sheets and keep injecting liquidity in debt markets. However instead of lending in the dormant US markets, the Banks utilized the money to invest in emerging markets and buy up commodities and metals. This helped them to strengthen the asset side of the balance sheet , so that the housing mortgage bad loan component became marginal by comparison.
While prima facie this looked a brilliant move the real problem is that it pits the banks in direct competition to the traders community who are infinitely more capable of making deals with end users of the commodities. Now that the Banks are in the game with their money power,they must get into day to day trading and hire specialists in each field to carry out transactions and move stocks. Prices of commodities and metals have already becPublish Postome sky high affecting demand trends. Now they must keep selling what they are holding to ensure that markets are liquid. Or they must keep holding the stocks like a warehousing company and wait for the canny traders to pick up their holdings which are already moving slowly due to high pricing.
Whoever said warehousing profits were higher than lending ? Warren Buffet is unhappy as he is already feeling the pinch as the largest investor of Banking stocks. The future may see him disinvest in the asset fixated Banking sector if the trend continues.
No comments:
Post a Comment