Wednesday, February 11, 2009
Why I hate Bank Stocks.
Why do I hate bank stocks?
Summary: Neither A borrower nor a lender be.
Banks basically make money thru borrowing and lending. And through buying and selling financial instruments, hur hur hur.
All activities which I'm not really all that fond of.
Banks assume that if you give 100,000 loans, 97% of them will repay their debts.
... which I am rather skeptical of!
Call me a cynic, but I think that if you or me went around giving loans, we would not be surprised to find 2 out of 10 people giving us problems collecting. That's 20% NPL.
And frankly, do you think would be more stringent in lending criteria, us or the banks?
Frankly, these banks are giving loans to any tom dick and harry! And large ones too!
Even my cleaning lady can get a 25k loan, with no collateral!
So, when banks announce that they only have 3% or 5% non-performing loans, I am SKEPTICAL.
...
As for the financial instruments... hahaha, no need for me to speak on that subject, right?
Summary: Neither A borrower nor a lender be.
Banks basically make money thru borrowing and lending. And through buying and selling financial instruments, hur hur hur.
All activities which I'm not really all that fond of.
Banks assume that if you give 100,000 loans, 97% of them will repay their debts.
... which I am rather skeptical of!
Call me a cynic, but I think that if you or me went around giving loans, we would not be surprised to find 2 out of 10 people giving us problems collecting. That's 20% NPL.
And frankly, do you think would be more stringent in lending criteria, us or the banks?
Frankly, these banks are giving loans to any tom dick and harry! And large ones too!
Even my cleaning lady can get a 25k loan, with no collateral!
So, when banks announce that they only have 3% or 5% non-performing loans, I am SKEPTICAL.
...
As for the financial instruments... hahaha, no need for me to speak on that subject, right?
Jasonred79 invested at
5:50 AM
4 Comments
4 Comments:
Nevertheless, you will see that the risk:ratio reward by these banks are always 2:1. (simple common example is interest rate versus BLR, roughly 2x)
Thus, if there like 5/10 people default, the banks already break even.
I like banks stocks though. Of course after this mess clear up as Banks ARE LEGAL AH LONGs.. :P
You got it absolutely wrong Kris.
The gain:payout ratio is 2:1, in the sense that banks receive 6& interest but pay 3% interest. Correct.
HOWEVER.
What happens during a default?
Let's say there are 1,000,000 worth of loans and deposits. So, bank pays out 30k, and receives 60k. 30k profit. Great!
What happens when you have a 10% Bad Debt written off?
10% of 1million= 100k...
That's more than 2 years worth of profits!
Of course, 10% NPL doesn't mean you get back 0. Say your NPL debtors repay 50%, and write off the rest.
...
That's still 20k loss.
5/10 default = breakeven? ... I can't believe you wrote that down, and didn't realise what you were writing. Any institution facing 50% defaults is OBVIOUSLY dead, how can you not realise that?
My bad..i think i got my analyst wrong..lol..
Nevertheless, i still like strong banks.
Oh, of course I like STRONG banks... I like ANY STRONG COMPANY.
Trouble is, a lot of banks that people THOUGHT were strong turned out to be very very fragile.
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