The dangers of delinking from base rates. Banks play a risky game...

Thrugelmir

ILW wrote: »

The banks are supposedly independent private institutions and their boards will do what they consider to be in their shareholders interests.

Banks are more heavily regulated than the majority of businesses. Even shareholders have been forgotten in recent times.

Basle 3 is heading this way in 2013. (start of anyway).

With no more QE interest rates will rise naturally. Days of cheap money are receding by the hour.

Generali

HAMISH_MCTAVISH wrote: »

Just as a comparison, do you have comparable figures for the "Big 6" in the UK that control the majority of UK lending?

It's a tricky figure because the UK banks have substantial non-UK businesses; indeed for Santander/Abbey the largest part of their business is outside the UK but I'll give it a go. BTW I see 5 big lenders: Abbey, HSBC, RBS, Lloyds (etc) and Barclays. Figures are for 2011 taken from their financial statements. EUR/GBP FX rate of 0.8 GBP/USD FX of 1.6 used.

Abbey
Santander profit = EUR5,351,000,000
They claim 10% of profits come from the UK retail banking arm = EUR535,100,000.
UK Bottom Line: £428,000,000

HSBC
They only show Europe rather than UK alone however if you assume that UK revenue as a proportion of total revenue is a proxy for UK profit as a proportion of total profit we get the below.
HSBC profit = USD21,827,000,000
UK profits = USD 5,029,000,000
UK Bottom Line = £3,180,000,000

RBS
Total loss = £766,000,000
62% of RBS's income is from the UK
UK Bottom Line = -£475,000,000

Lloyds
Total Loss = £2,714,000,000
As Lloyds is pretty much a 100% UK business:
UK Bottom Line = -£2,714,000,000

Barclays
Total profit = £5,879,000,000
Again Barclays is a mostly UK business:
UK Bottom Line = £5,879,000,000

Total UK Banking Profits = £6,300,000,000

There are about 25,000,000 households in the UK so profit per household = £250

This is real finger in the wind stuff though.

ILW

How does that show as a percentage of turnover?

HAMISH_MCTAVISH

Reuters is reporting the UK’s five biggest banks are expected to earn profits of £35 billion between them in 2012, or £137million a day.

Presumably however, much of that is from non-retail banking operations.

I heard it reported that the big four make 10 billion in profit a year from UK retail banking.

Generali

ILW wrote: »

How does that show as a percentage of turnover?

Turnover isn't a valid measure for a bank. Return on equity (RoE) is the most common measure used that is equivalent to your question. To calculate it you would need to weight it. I guess the calculation across the banks would be to use total gross revenues for each bank and then use those to create weights to add the RoE equities together.

Even then you will struggle to get a valid figure out for the UK as I don't think that RoE is produced on a market-by-market basis.

The one thing I would say is that HSBC's results really stand out as being very good!

HAMISH_MCTAVISH wrote: »

Reuters is reporting the UK’s five biggest banks are expected to earn profits of £35 billion between them in 2012, or £137million a day.

Presumably however, much of that is from non-retail banking operations.

I heard it reported that the big four make 10 billion in profit a year from UK retail banking.

That wouldn't surprise me. Lloyds alone made a loss of more than £3,000,000,000 in 2011 from PPI repayments and related costs. That would all but get them over the line.

The banks have been allowed to use the current FUBAR to consolidate and remove competition from the market. The top ten lenders have had 2 removed by Nationalisation (NRK and B&B) and another 3 removed through merger (HBOS, Nat West and HBOS). Of course the rest are going to use their market power to screw their customers: they are legally obliged to do so!

The directors of listed companies have a legal 'fiduciary duty' to their shareholders. Effectively that means they have to maximize the profits of their companies for the benefit of shareholders. IMHO the banks should have been allowed to fail and then been broken up into hundreds of very small banks. What do I know though.

ILW

Generali wrote: »

Turnover isn't a valid measure for a bank. Return on equity (RoE) is the most common measure used that is equivalent to your question. .

Yes, thanks for that.

The profit figure alone says nothing.

If a bank is earning 3 billion but employing 100 billion in capital to achieve it, it is not exactly profiteering.

Generali

ILW wrote: »

Yes, thanks for that.

The profit figure alone says nothing.

If a bank is earning 3 billion but employing 100 billion in capital to achieve it, it is not exactly profiteering.

I don't recall the exact numbers but I think typical ROE for a bank is about 10%. RBS currently gets less than 2% from memory.

michaels

This started with a discussion of the very concentrated banking industry of Aus. Is there any sign there of a monopolies investigation. I guess the problem is that countries like to keep their banks large so they can be international players but this doesn't tally with using competition policy to break up excessively powerful suppliers. Then again UK grocery retail is also extremely concentrated and it has never been challenged. I suspect tho that whilst individually the Aus banks are profit maximising by rasing margins over central bank base rate, collectively it increases the odds that the govt will try to intervene.

Generali wrote: »

The banks have been allowed to use the current FUBAR to consolidate and remove competition from the market. The top ten lenders have had 2 removed by Nationalisation (NRK and B&B) and another 3 removed through merger (HBOS, Nat West and HBOS). Of course the rest are going to use their market power to screw their customers: they are legally obliged to do so!

The directors of listed companies have a legal 'fiduciary duty' to their shareholders. Effectively that means they have to maximize the profits of their companies for the benefit of shareholders. IMHO the banks should have been allowed to fail and then been broken up into hundreds of very small banks. What do I know though.

Thrugelmir

Generali wrote: »

I don't recall the exact numbers but I think typical ROE for a bank is about 10%. RBS currently gets less than 2% from memory.

Lloyds was nearer 1% for 2011. That was before exceptional items such as PPI etc.

HAMISH_MCTAVISH

Crikey, just noticed this little masterpiece of misdirection.

Lets take this one at a time.

Graham_Devon wrote: »

But you are on record stating that the BOE rates have nothing to do with mortgages and the housing market.

I've said that the reason the BOE lowered rates was to save the wider economy, not the housing market.

And that is true.

I've also said the health of the wider economy is dependent on the health of the housing market, and vice versa.

And that is also true.

So why are you so concerned? How is this going to undermine the recovery if it's only effecting the housing market and mortgages and not the economy?

Because the two are interlinked.

You can't look at one in isolation. A healthy economy requires a healthy housing market.

And the mechanism through which the BOE injects liquidity into the wider economy is through reducing interest rates on debt. Mortgage debt is obviously a significant element of that.

Do you now disregard what you have previously stated in response to other arguments?

Obviously not. My arguments are consistent. It is you who tries to twist things out of context, as always.