Ed Milliband promotes living wage as labours next big thing

Eellogofusciouhipoppokunu

Graham_Devon wrote: »

REALLY interesting discussion from both Grizzly and NIAK looking at 30 years ago vs today.

I have seen this sort of discussion elsewhere before now, and I believe the problem is that we expect perpetual growth.

The bank may well have survived perfectly fine 30 years ago with more prudent practices, but the need for growth creates the need for further profits. The need for further profits fuels further products aimed at more and more people, people who wouldn't have qualified for previous products.

So, you create growth by targetting people you couldn't target before...fantastic. But you still need more growth. Investors want more profits. So you have to do the same again, attracting more people with more products...and so it continues.

It's the same with many business. Tesco is a prime example whereby growth is demanded, but there is little they can do to provide any more growth, and we saw recently how investors punished them, wiping off 30% of the stock value in a day, and it's not since recovered as Tesco simply can't create any more growth, firstly because they are so damn big and theres no where left to go, and secondly because we haven't got any money left thanks to the growth in producst elsewhere pumping up the prices of commodity goods.

Capitalism needs this perpetual growth, so although banks and business can function perfectly at lower profit margins, the investors could hammer them into bankruptcy if they don't make more and more money....and therein lies one of the biggest issues not often talked about. IMHO anyway.

Are you really this naive about economics?

grizzly1911

Eellogofusciouhipoppokunu wrote: »

Are you really this naive about economics?

Perhaps you would like to avail us, with your in depth knowledge and point out the weaknesses in the GD's POV.

Thrugelmir

grizzly1911 wrote: »

Their cross selling hasn't always lead to pots of gold for them either.

Between 2000 and 2010. UK banks and building societies sold £34 billion of PPI cover that generated around 50% of profit made from retail banking.

Given such a loss of income. The days of free banking as we know it are numbered. Given the ever increasing regulatory costs of running a bank , FSA levies etc.

grizzly1911

Thrugelmir wrote: »

Between 2000 and 2010. UK banks and building societies sold £34 billion of PPI cover that generated around 50% of profit made from retail banking.

Given such a loss of income. The days of free banking as we know it are numbered. Given the ever increasing regulatory costs of running a bank , FSA levies etc.

Possibly.

PBT ,W/Os and extraordinary items has remained relatively constant though for the likes of Barclays. Arguably for shareholders they have merely been put back to a position pre PPI. Free banking existed before PPI.

I will be surprised if free banking (operating costs) doesn't remain for simple accounts, especially those run in credit or within agreed limits.

Even more so once the"nationalised" banks are broken up and competition re-enters the market.

N1AK

Graham_Devon wrote: »

It's the same with many business. Tesco is a prime example whereby growth is demanded, but there is little they can do to provide any more growth, and we saw recently how investors punished them, wiping off 30% of the stock value in a day, and it's not since recovered as Tesco simply can't create any more growth, firstly because they are so damn big and theres no where left to go, and secondly because we haven't got any money left thanks to the growth in producst elsewhere pumping up the prices of commodity goods.

The stock value of Tesco was based on the belief that they could continue that growth. They didn't lose the value as punishment; they would never have had it if the growth hadn't been expected to begin with.

As to Tesco's scope to grow; I actually think that's quite a narrow view. Tesco have been struggling for years to expand into other markets especially America and have been using the UK operation to fund it. Suddenly their UK arm isn't as invincible as it seems and need considerable investment, that is what has concerned investors.

You have to remember when thinking about scope of companies that Coca-cola used to measure growth potential based on total drinks of any kind consumed (share of stomach). Gillette used to be considered a cash cow with no scope left for organic growth before Mockler became CEO and turned the business culture round.

Thrugelmir

grizzly1911 wrote: »

Free banking existed before PPI.

Agreed. Correspondingly banks had far higher lending margins.

Return on capital for selling PPI was over a 150% compared to less than 1% on mortgage lending.

In fact the profit margin achieved by some sellers of PPI was around 90%.

Strip out PPI from the reported bank retail profits 2000 -2007 and you'll see a far different picture.

grizzly1911

Thrugelmir wrote: »

Agreed. Correspondingly banks had far higher lending margins.

Return on capital for selling PPI was over a 150% compared to less than 1% on mortgage lending.

In fact the profit margin achieved by some sellers of PPI was around 90%.

Strip out PPI from the reported bank retail profits 2000 -2007 and you'll see a far different picture.

That is true but we would be seeing stronger profits now, without misselling costs and compensation, so they just pulled the earnings forward.

Perhaps the margin on lending should be higher to reflect the real risks, rather than those being held down too, by cross selling activities which allowed them to chase quantity rather than quality. Not to mention the other stuff.