Dec. 11th, 2008

peterbirks: (Default)
A rare flash of honesty from the banking sector, yesterday.

"If I knew how to restart inter-bank lending, I would talk to Mr [Jean-Claude] Trichet (ECB governor) and to politicians in Europe. Buit I haven't a clue",
said Andreas Trechl, CEO of Austria's Erste Bank.

Although Treichl played his fair share of the blame game, his points yesterday must have hit home. He said that it didn't help that if any bank at the moment said that it had increased its exposure to other banks (i.e., re-entered the interbank lending market) then the institutional investors sell the stock and the analysts say that they (the banks, not the stock sellers) are idiots. Then again, it's very sad when a bank CEO lacks the courage to tell the market "Fuck what you do with the shares. My decision is right". If the banks continue to let their actions be determined by institutional investors, then they are bigger wimps and cowards than I thought. It was following institutional pressure that got a lot of them into trouble in the first place (and it was AIG's attempt to generate a return on equity more bank-like than insurance-like that spelt its eventual near-doom). Although the institutional investors might moan, I don't see EGMs cropping up trying to unseat executives if they have the guts to say "we are going to start lending to selected other banks. We think it's the most profitable thing to do".

When there is a general flight from risk, risk is the thing to be taking. It's paying a higher price for a set amount of risk taken. I am still to understand what kind of business model says that you should buy stuff only when it is expensive "because everyone else is buying it" and not buy it when it is cheap "because no-one else is buying it, therefore there is something wrong with it". This is not the Wisdom of Crowds. This is the stupidity of sheep.

The cowardly banks are waiting to see where the winners are and where the losers are before entering the market (current ETA, April 2009). The shrewder banks -- the ones that move first, will realize that, since there are bound to be some winners and some losers (indeed, since the amount that has actually "lost" is a mere fraction of one percent of the amount that is nominally "at risk", any gamble is effectively something like 49.95% to 50.05%) then a spread of risks when risk is available at a good price ought to be very profitable indeed. You only to be 0.1% on the right side in your judgement to turn a profit.

Unfortunately there is no way that I know for us peasants to make cash on this, because we are talking about areas of total opacity. No bank is going to move back into interbank lending in the full glow of publicity. What the investor needs to do is to look at character, style and past history of "doing what we think is right, rather than what the market thinks is right". Such players are thin on the ground.

In addition, much of the old banking model is broken, so the old profit numbers are unsustainable. In a second addition, there's still a capital shortage. Even if you think that interbank lending is the right thing to do, there might be other things which are more attractive.

The only "interbank lending" that we, the public, can take part in is fixed-interest deposits, and I think it's interesting that the public is prepared to step in where the banks fear to tread. Those two-year fixed rates have been snapped up as if there is bno tomorrow. It's a funny old world where the 'safe' retail investor is prepared to be more of a venture capitalist than the leading banks.


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