Wednesday, March 31, 2010

Banks are stepping up their lending efforts

This morning I received an email from Charles Schwab offering to reduce my margin interest by up to 30%, depending on my willingness to borrow. It strikes me as unusual, but also very interesting, because this represents an aggressive attempt to increase lending activity. Perhaps banks are finally realizing that the very steep yield curve gives them a fabulous opportunity to make money by lending more. Their prior reluctance to lend was undoubtedly driven in part by concerns that the economy was fragile and credit risks were high, but those concerns are likely beginning to fade.

Once a recovery gets underway, it becomes self-perpetuating as confidence rises and risk-taking resumes.

8 comments:

John said...

This is perfect example of how bank earnings are going to increase dramaticly when lending picks up. I am not privy to the lender's cost of money but you can safely wager its considerably below what they are charging the borrowers. The spreads are wide, thus the incentive to lend is high. All that is necessary is a qualified borrower and a little confidence from the lender that his loan is a good one (although it has been said ALL loans are good - when they are made. They only turn sour later.)

I continue to be long bank stocks. C,JPM,XLF, and others.

alstry said...

Scott,

I am sure you are a man of means...but our pensions are now over $3 trillion underfunded...most of our cities, counties, and states are running out of money...we have now accumulated $55 trillion of public and private debt. Do you really think lending a few pennies to the few who can still borrow is going to be sufficient to keep the game going?


The joke is things are so bad, we are throwing money at bankrupt businesses simply to keep the illusion of profitibility.

For example, if you add up the total tax rebates and private equity investments into the public homebuilders over the past couple years.......it would EXCEED the current collective market cap.

Society would have been better served had we simply bankrupted most of them......now government and Wall Street is borrowing over $3 trillion dollar per year and we are still losing private sector jobs?

septizoniom said...

ONLY YOU WOULD MAKE THIS POINT ABOUT A MARJIN LOAN. YOU ARE A PIP

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John said...

and you, septi, are rude.

septizoniom said...

John: va via!

Cabodog said...

I just returned from a conference where the lack of lending was a major topic. The consensus: at some point, a light-bulb will turn on when the banks realize there's money to be made lending to prime borrowers.

Typical over-reaction from the banking industry; going from fog-the-mirror lending to overly restrictive. Funds currently "invested" at under one percent return need to be redeployed.

sgt.red.blue.red said...

Schwab is trying to induce people out of money markets where the company is losing money. No commission proprietary ETF's have the same goal.