a fat panda

Why BofA Needs to Shrink

It is doing its best to shrink by monetizing its account base which is great in the short-term but expensive in the long-run.

While fee revenue is going to grow, it is going to drive away existing customers. You may think that is great until you look at customer acquisition costs. I worked in credit cards where it cost us about $250 to find a prospective customer. The booking costs and incentives went on top of this. When we bought business, we were buying prime accounts at $300 to $500 a piece.

In the short run these fees will help revenue, but it will be more than offset over time as the bank has to find customers to replace the ones that they fee'd away.

Capping Bank Size

Felix there is a chorus, and it is one that makes no sense.

We have to save these banks - or the world will end because they are invaluable to the global economy. We are however worried that they haven't learned a lesson from the past year so they have to be regulated by the government. The government has proven itself to be unable to regulate anything so the suggestion goes that we have to cap the size of the banks because the banks can't do their job and neither can the government. But they are vital to the global economy.

If the banks can't learn from their mistakes, can you tell me one more time why did we saved these banks?

Why Bank of America Paid Back the Money

If I have a problem with the TARP, it is that it is the highest cost of government support that you can get, and brings on the worst public relations. It should have been paid back.

Issuing stock is probably the least appealing option. But these people may be looking down the road, knowing that they will have to raise capital in what may be a much less favorable market. The market is up 60% in the last 9 months, and they know if housing continues to erode and commercial real estate starts to break, they will need to raise equity on less favorable terms. Raising this capital now will give them an option to go back to TARP money in the future. (I don't know that Cit has that option)

My guts says it is less forward looking. Having sat in meetings with bankers, and I suspect that there was a lot of talk about ways to get out of the TARP restraints. After hours of babble, someone said, look how much is this going to cost in stock, and whatever the answer was : It was less painful than sitting in the meeting and everyone said Aye.

Ben Bernanke Pleads for His Job; My Response to Bernanke

Mish, Very good work. I really like the depth of your work. Anyone can take Bernanke's words from 2008 and make him look idiot. You showed at least that he has been an idiot for many years where as others work makes you ask whether he slept through his early years in the job.

How Banks Actually Make More from Bad Credit

The flaw in your thinking is that you are comparing the 80s which was a period of credit expansion with today which is a period of credit contraction.

I am not sure where you get the 5%. I would be surprised to find that anyone gets 5% given that these cards are accepted by most grocery stores where margins are razor thin. But you are mistaken to think that the bank gets what Mastercard and Visa charge.

Good luck with your free money. At .4% in a MM, you are getting $20 a year running $5,000 a month. And be sure to enjoy reading the change of terms statements that you are getting on your cards. I know I am gettting them myself.


On Dec 02 02:13 AM William Legrand wrote:

> I guarantee you will be proven incorrect. Banks pulled the same stunt
> back in the late 80s. It failed miserably by the early 90s as more
> and more banks advertised "no annual fees" and consumers mass migrated.
> I expect a repeat. Plus, in my case, I make hundreds of credit card
> purchases annually, for a very substantial net sum. My bank "earns"
> a up to 5% transaction fee on every one of those purchases, paid
> for by the sellers. No doubt my bank realizes they will lose all
> that "free" income if I take a hike to the first bank down the street
> that advertises "no annual fees".

How Banks Actually Make More from Bad Credit

William,

"No matter how a bank stacks the credit card deck" - you keep that thought and make sure that you look for your annual fee.

The banks know what you are up to, and have tolerated people like you for the most part by making money from the merchant. But those days are coming to an end. They are bringing annual fees online just to deal with pests like you. So they will say, you keep your $20 for the float on $5,000 every month. We will charge you $85 unless you have a relationship that shows that you are worthwhile.


On Dec 02 12:53 AM William Legrand wrote:

> No matter how a bank stacks the credit card deck with high interest
> rates and late fees, individual cardholders are fully responsible
> for accruing credit card debt in the first place. In general, there's
> a simple solution for the cardholder to stack the deck against the
> bank: Pay off the balance in full every month. That way it makes
> no difference what the interest rate and late fees are, because the
> cardholder never pays them! Better yet, paying off in full means
> the cardholder gets an interest free loan while their money can keep
> earning interest in a bank account. Yes, this approach requires discipline
> and responsible behavior, being careful to avoid the temptation to
> buy, buy, buy on impulse. But once the cardholder gets into the habit
> of paying off that balance every month and realizes how much farther
> their income goes, it becomes an addictive and very rewarding habit.

How to Fix the Fed - A Lesson from AIG

Separately, the Fed is broken, and minor patches aren't the answer.

The Fed is fundamentally broken when it puts the equity interests of banks above those of Americans. When it refuses to apply haircuts on taxpayer welfare, it is putting the equity interests of bankers above average taxpayers. That is bad. When you drive interest rates to zero, the Fed is putting the equity interests of banks above the interests of Americans living on a fixed income. That is outrageous.

The next time you hear about 20 billion in bonuses going to GS, don't think about Lloyd and his gaggle of welfare mommies. Think of the 80 year-old who gave-up basic needs like a telephone and coffee because the interest on her savings was cut by 90%. Then you can say you think that the Fed is savable. I know her, and I can't.

How to Fix the Fed - A Lesson from AIG

"Fed officials in New York tried meekly to get a better deal, but the trading partners argued that they'd be violating a fiduciary obligation to their own shareholders if they voluntarily gave up cash they were due. That's valid."

It isn't valid. It is absurd. The debt that they were owed is only as good as the counter-party risk that they accepted when they entered the contracts with AIG. If I made a loan to a dead-beat, would it be equally valid that taxpayer should pay me? AIG is not an FDIC insured company. These people took risks, and now want the taxpayer to take the consequence.

Bigwigs Debate 'Too Big to Fail'

You have picked an interesting group of economic heavyweights. Most of these people were either responsible for this mess, or stood by pumping economics pom-poms. There is a major problem with the leadership of this country when incompetence is rewarded. It is difficult to say whether Bernanke or Geithner did less to protect this country, and yet one is promoted while the other is renominated.

Is Dubai's Default a Black Swan Event?

This isn't a black swan. It is just another domino. Black swans are suppose to be rare. The word is now used so much that people are naming their kids after it.

Yes, The TARP Is Leaking

What is amazing is that beyond the TARP there is a series of programs designed to support the banks and promote liquidity in the credit markets. TARP is just the most visible. If you can't make money between the welfare and the dodgy accounting rules, you really need to re-think your career. If you aren't making payments on TARP loans, it is time to concede that banking isn't your calling.

The banks that are behind need to be closed. They aren't coming back, and all of the welfare that we are giving them just deludes the people who work there. If you can't make money in banking in this environment, you need to go back to being a bell-hop, a car pilot, a stripper, to whatever you were before you got the bright idea of becoming a banker.

A Sit Down with Treasury Officials (Part I)

There is an old saying, "Better to be thought a fool than to open your mouth and remove all doubt" that comes to mind. But it doesn't do justice to inviting bloggers to the Treasury. So the new saying will have to be created :

"Better to be thought corrupt or fool by bloggers, than to invite them to ask questions for which you are not prepared and let the rest of the world in on the secret of how truely stupid you are".

What did they expect? They wanted to give you a hug and have you go away.

More Reasons to Break the Plastic Habit

Your boy is better than most consumers. The information regarding rate increases is normally sent in a disclosure statement that is virtually unreadable.

Mervyn King: Break Up the Big Banks

"The UK and US are peas in a pod. We don't see this extreme anywhere else on the globe. There must be a reason."

I largely agree with you up to the last point. Banks all over Europe have been hit with this financial crisis. And I think the reason that you didn't see the ripple go further was the US taxpayer back-stopped the US banks and the GSEs.

How Regulated Does Wall Street Need to Be?

"I think a model where one boring business gives you free capital to then go and risk in proprietary trading is very difficult to defend."

It should be even harder to defend a model where the boring business is the Fed's discount window. And if you think it is defensible at all run you defense past a senior citizen who is trying to live on CD interest the rates on which have been driven into the ground. I actually know a couple of these people who are suffering terribly so that Wall Street can recover.