Hat tip to Rick for sending this along, from Yahoo Finance:
http://finance.yahoo.com/news/Risktaking-is-back-for-banks-apf-3400806176.html?x=0&.v=1
NEW YORK (AP) — A year after the financial system nearly collapsed, the nation’s biggest banks are bigger and regaining their appetite for risk. Goldman Sachs, JPMorgan Chase and others — which have received tens of billions of dollars in federal aid — are once more betting big on bonds, commodities and exotic financial products, trading that nearly stopped during the financial crisis.
There have been no significant changes to the federal rules governing their behavior. Proposals that have been made to better monitor the financial system and to police the products banks sell to consumers have been held up by lobbyists, lawmakers and turf-protecting regulators.
Five of the biggest banks — Goldman, JPMorgan, Wells Fargo, Citigroup and Bank of America — posted second-quarter profits totaling $13 billion. That’s more than double what they made in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the second quarter of 2007 — when the economy was strong.
Meanwhile, Bank of America and Wells Fargo today originate 41 percent of all home loans that are backed by Fannie Mae and Freddie Mac, according to Inside Mortgage Finance. The banks made $284 billion in such loans in the first half of this year, up from $124 billion during the same period last year.
“The big banks now are more powerful than before,” said Johnson, now a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “Their market share has grown and they have a lot of clout in Washington.”
One investment gaining popularity is a direct descendant of the mortgage-backed securities that devastated many banks last year. To get some lesser performing assets off their books, banks are taking slices of bonds made up of high-risk mortgage securities and pooling them with slices of bonds comprised of low-risk mortgage securities. With the blessing of debt ratings agencies, banks are then selling this class of bonds as a low-risk investment. The market for these products has hit $30 billion, according to Morgan Stanley.
“It may be unpleasant to hear that the traders are riding high,” said Walter Bailey, chief executive of boutique merchant banking firm EpiGroup. “But, hey, it’s a pay-for-performance thing, and they’re performing like mad.”
And that means the return of another Wall Street mainstay: Lavish compensation.
After 10 of the largest banks received a $250 billion lifeline from the government last fall, some lawmakers were outraged that employees were being paid seven-figure salaries even though their companies nearly collapsed. A handful of top executives, including Citigroup CEO Vikram Pandit, have agreed to accept pay of just $1 this year. But the compensation of most high-performing traders hasn’t changed.
Goldman spent $6.6 billion in the second quarter on pay and benefits, 34 percent more than two years ago. And Citigroup, now one-third owned by the government after taking $45 billion in federal money, owes a star energy trader $100 million.
So banks should have gone broke but instead used taxpayer $$$ to make money.
Sigh..
“Goldman spent $6.6 billion in the second quarter on pay and benefits, 34 percent more than two years ago.”
That quote is mind-boggling.
Agreed – if anyone is thinking it’s better to join ’em……
GS has 22,000 employees
Percentage of new entry-level hires since Jan. 1, 2006, with annual base salary in the following ranges:
Less than $35,000: 0
$35,000 to $39,999: 0
$40,000 to $44,999: 0
$45,000 to $49,999: 0
$50,000 to $54,999: 12
$55,000 and above: 88
Did half or more of all entry-level hires since Jan. 1, 2006 receive a signing bonus? Yes
Good to know the $20B funneled to them through AIG is being used to grow the economy. If the economy is defined as buying luxury artwork and car service rides.
consultants anyone?
On the subject of Goldman Sachs, most of the AIG bailout went to Goldman. ( http://www.businessinsider.com/henry-blodget-goldman-sachs-wins-big-in-secret-bailout-via-aig-2009-3) And Henry Paulson was the CEO of Goldman. And Lehman that was allowed to go into bankruptcy was a Goldman’s biggest competitor. By the way, has anyone seen my tinfoil hat?
As much as I usually like to pile on in these cases, Yahoo! is not the most legitimate news source out there.
Can someone confirm for sure that JP Morgan and Wells took federal aid? I also don’t mind Citi making earnings, especially if they’re owned 1/3 by our government. Don’t most people want to cut the national deficit?
So much for “socialism”..this sounds like predatory capitalism at its best…Only in America.
“So much for “socialism”..this sounds like predatory capitalism at its best…Only in America.”
You obviously never read “Animal Farm”
Wasn’t Geithner a former GS guy too?
Our tax dollars at work. And people were insisting we had to bail them out or our whole economy would collapse. Some people were just outright vehement. We MUST bailout the whole mess.
Well, I can see this sure went a long way to helping our economy. Oh, sure. If we hadn’t bailed them out, we could be a lot worse, so they say.
Let’s see. If we didn’t have a bailout, they couldn’t lavish themselves in bonuses. Yeah. We sure did right by a bailout.
UGGGGHHH. So frustrating. Makes my head spin.
And to add insult to injury. Lesson learned. Repeat it over again. New package to slice and dice and sell. Oh, yeah. It really worked out swell.
“”You obviously never read “Animal Farm”””
Never read fiction, allegories, or mythology…only deal with facts and reality.
‘Never read fiction, allegories, or mythology…only deal with facts and reality.’
Then you should know the more things change, the more things stay the same.
John Lennon said that Harry Nilsson said “Everything is the opposite of what it is.” How else can you figure a world of maddness?
@The Blur (7): It’s credited to AP, which may or may not make it more trustworthy.
@Jim (3): Not to defend them, but isn’t Goldman in NYC? If you figure they contract out everything they can, 50K’s not an unreasonable starting salary for a kid right out of college in that area.
@ Disgusted:
1) Yes, we’re far better off for the bailouts. Without them, the entire financial system would have folded. Most banks would have had “runs” on them, resulting in failures everywhere. Assets would have been forced into massive liquidations. Think that’s not a big deal? Well, even your money market fund would’ve taken big losses and your ATM and credit cards would have been frozen.
2) Um, many recipients of government aid (e.g., Goldman and others) have paid it back, and with very high rates of return. Thank them for that. There were no gifts of direct aid.
3) $50K is a pittance in NY.
4) Yes, JPM and WFC received aid.