Banks Give Bonus and Spread Toxic Assets
Sixty one percent of the banking profits came from fixed income sources this year as opposed to 50% last year. The investment banking part of bank income was down 19% quarter-on-quarter basis to $11 billion as the big banks generated record profits through fixed income securities, currency and commodity trading. Lending, as a result, was no longer a priority for big banks.
Leading the pack of Wall Street Banks was none other than Goldman Sachs, with mind boggling profits of $3.3 billion this quarter to top a $13.6 billion record profit of last year. Their profit trail was closely followed by J.P. Morgan, Citi Bank, Barclay's, Morgan Stanley, Deutsche Bank and a few others.
Goldman now under the SEC and Senate scanner found its investment banking part dip to 11% while fixed income trading, hedging and shorting accounted for 75%.
Incidentally all of these banks also have a sizable portfolio of toxic assets lying dormant in their accounts or in the process of being sold off to gullible investors.
At the height of the financial crisis, the banks had little room to avoid massive write downs in the value of collateralized debt obligations (CDOs) and other complex securitized products tied to toxic residential and commercial mortgages. But now that they have come into profits, regulators should have stepped in to ensure that part of those profits go to write down the toxic assets instead of being distributed as gilt edged bonuses.
The big banks have billions of dollars of toxic assets tucked in their closets. It is not only Goldman who duped the European investors. Barclay's plc., last year spun off $15 billion toxic assets to a independent company to further recycle it back to the system at an opportune moment. This shows that banks have no intention of writing off any mortgage backed CDS or CDO instruments, but want to merely repackage and recycle them back to the same pool.
This will keep the financial markets in an uncertain state for ever, particular in the commercial real estate mortgages, which may take many more years to recover. It is hence time to now split these banks, write off toxic assets and have a more segmented financial system. If you desire stay big, you must go through separate safety norms, stringent disclosure norms and also need more capital.