explain i-banks to me.. (1 Viewer)

[seremify007]

I heard from a banker who spoke to us at USYD that if just one loan goes bad, they can lose all the profit they make from their other loans to cover it- which makes sense when you think about it assuming that the loan which goes bad lacked ample security or guarantee.... so the profit margin isn't "always huge".

 

[mr_shittles]

I heard from a banker who spoke to us at USYD that if just one loan goes bad, they can lose all the profit they make from their other loans to cover it- which makes sense when you think about it assuming that the loan which goes bad lacked ample security or guarantee.... so the profit margin isn't "always huge".

The banks usually operate on an interest margin (ie. the amount by which the income from funds lent exceeds the cos of funds lent) of between 2-3% at the moment. Since we're in a pretty rosy period, the amont of bad debts incurred by banks is between 0.1-0.3%. As you can see, the margin is pretty good at the moment.

But when mistakes are made or during really bad economic times, the bank exposes itself to a higher amount of risk, and it ends up losing money, and what the guy described happens and all the money made on a few loans is wiped out by the bad debts expense on just one loan. Although in the current climate in Australia that doesn't happen too often and when it doesn't happen too often, the margins look fat.

 

[ND]

Banks also don't do well when the yield curve inverts.

 

[Omnidragon]

The banks usually operate on an interest margin (ie. the amount by which the income from funds lent exceeds the cos of funds lent) of between 2-3% at the moment. Since we're in a pretty rosy period, the amont of bad debts incurred by banks is between 0.1-0.3%. As you can see, the margin is pretty good at the moment.
But when mistakes are made or during really bad economic times, the bank exposes itself to a higher amount of risk, and it ends up losing money, and what the guy described happens and all the money made on a few loans is wiped out by the bad debts expense on just one loan. Although in the current climate in Australia that doesn't happen too often and when it doesn't happen too often, the margins look fat.

Definitely... and this isn't something new.

If anybody trades shares or invests in bank shares, they'll see that 3 of the big 4 banks have all been hitting records these past 10 days. With a leading resource sector and the Dow pending to breakout through 11,000, it's no surprise that the banks are viewed rather favourably at the moment.

The question is, how much longer is this sustainable for? If interest rates go up, less people borrow, economic conditions tighten and most likely the banks aren't going to perform as well... if not perform poorly.

When the market realises this, we'll see a fall in their share price, and that just adds to the whole worsening whole scenario.

I think for the past 5 or 6 years, people have really taken the bull market for granted... maybe when conditions tighten, instutions like MBL will need to be examined with a bit more caution and scepticism.

 

[ND]

Definitely... and this isn't something new.
If anybody trades shares or invests in bank shares, they'll see that 3 of the big 4 banks have all been hitting records these past 10 days. With a leading resource sector and the Dow pending to breakout through 11,000, it's no surprise that the banks are viewed rather favourably at the moment.
The question is, how much longer is this sustainable for? If interest rates go up, less people borrow, economic conditions tighten and most likely the banks aren't going to perform as well... if not perform poorly.
When the market realises this, we'll see a fall in their share price, and that just adds to the whole worsening whole scenario.
I think for the past 5 or 6 years, people have really taken the bull market for granted... maybe when conditions tighten, instutions like MBL will need to be examined with a bit more caution and scepticism.

The Dow broke through 11000 some time last week.

If these tax cuts go through, interest rates will certainly rise, but it's not gonna throw us into a recession or anything. Remember, the reserve bank raised the rates last year and the markets rebounded and performed extremely well.

 

[ND]

After all the earnings reports this week in the US we'll have a better idea of where the markets are going.

 

[_Alfie_]

Yup yup...unproductive and immoral speculation with other peoples' money is the way to go...lol

 

[ND]

Hahah why is speculating with other ppl's money immoral? People pay to have their money speculated with, and considerating the amount of money hedge funds make, you can hardly call it unproductive.

 

[seremify007]

*agrees with ND*

It's not immoral- the people invest in these funds/companies because they want to gain a return, and they are fully aware of the risks involved. And besides, at least most of the time the people doing the speculating are relatively good at it.

 

[Omnidragon]

There are risks involved... not a free-rider situation. Hardly immoral.

 

[§eraphim]

On the topic of IB, which areas do you think would involve the most product development? At the moment I prefer that over sales.

 

[§eraphim]

Hahah why is speculating with other ppl's money immoral? People pay to have their money speculated with, and considerating the amount of money hedge funds make, you can hardly call it unproductive.

This needs to be balanced by strong oversight by the regulator in charge. Otherwise, unregulated/poorly regulated speculative trading by hedge funds contrbutes to a lot of volatility and prevents the market from returning to equilibrium. eg LTCM

Also, hedge funds were originally intended to benefit the very rich, so the best argument in favour of them is that they make the market more efficient.

I think the issue is the individual's behaviour and how it's controlled by the risk management systems in place (bank's responsibility).

 

[ND]

I agree that hedge funds and insto's create volatility, but that's not a bad thing. Volatility creates the opportunity for gains. If the market was always in equilibrium (not that it could ever be, even without hedge funds), then making money would be purely luck.

 

[_Alfie_]

Hehe...I was jking...but there is a logic to the argument:
Generally, investing = gambling = a vice that is seen as wrongful behaviour by society i.e. immoral by definition

Note: Just because there is risk doesn't mean it can't be immoral, i.e. stealing is immoral yet you risk gettin caught doing it!!!

If anything's immoral it would be working as an actuary: plucking numbers out of thin air, justifying them with theories that actuaries themselves don't agree with, and gettin paid for generating all the spreadsheets in the process....lol

 

[ND]

Hahah, screw morals man, it's all about the $$$.

On an unrelated note, did anyone see the article about the 4 guys at MS (in the US i believe) that got fired for going to a strip club? How gay is that.

 

[seremify007]

Well gambling is meant to be purely random isn't it? And if you have any advantage such as counting or rigging- then it's cheating.

But with investing, everyone is on level ground- not counting insider trading.

Although I do see your point that investing is like gambling- except it's less luck and more skill, in a more regulated environment.

 

[Omnidragon]

I'd say administrators of law are just as immoral as actuaries. Trying to enforce a set of beliefs that's constantly on the verge of change, subject to ongoing criticism and arbitrarily created by convention is too much for a postmodernist like me.

 

[ND]

Well gambling is meant to be purely random isn't it? And if you have any advantage such as counting or rigging- then it's cheating.

Not at all, there are many ppl that make a living playing poker. It's a zero sum game, and ppl that are good can make quite an income.

But with investing, everyone is on level ground- not counting insider trading.

I'd say it's the other way around, in poker everyone is no a level playing ground, but with investing there is lots of asymmetrical information. Everyday investors don't get have the info that insto's get (and that doesnt include inside info).

 

[ysux]

IB Pay in Australasia [Macquarie]

[this is same with the message on the thread "Mac Bank Employees"...sorry for the duplication]

Hi Buddies, I am an MBA graduates with 8-10 years experience, now in the offering process with Macquarie Corporate Finance team (front-office). I have heard that there’s no signing bonus. Your insight on the remuneration is highly appreciated:

1. What’s the entry salary for MBA graduates? Or in what percentage of “bulge bracket” i-banks*’ offer does Mac offer? (*=Goldman Sachs, Morgan Stanley, Citigroup, JP Morgan, Lehman, CSFB, DB, etc.)
2. What’s % of bonus/commission?
a. Pay in one time at fiscal beginning or on deal basis?
b. If one leaves in one year, can s/he get pro-rated variable pay?
c. On team or individual goal, or combined?
3. Does Mac offer global pay in Australasia like top i-banks do?
4. Does Mac HR differentiate US, European, and Australian school? Their length, academic, and tuition vary a lot…
5. Does Mac differentiate pre-MBA experiences – in terms of nature, length and capacity?
6. What’s the workload at Mac CorpFin team? 50, 60, 70, or 80 hours per week?
7. What’s the career track and promotion cycle?
Mac’s is different from US i-banks – it has division directors, senior manager, etc. Usually an MBA graduate starts as Associate, become VP in 2-3 years, then Executive Director and finally Managing Director.
8. Any other special?

I look forward to your information. THANK YOU!

 

[tmrisanotherday]

it is a well-paid job, especially working as trader, quant or working in IPO
There is a trader in NY, who earned 50 million usd bonus last year.