Here is a series of quarterly numbers
Obviously this number has been getting bigger over time – and very dramatically bigger this year and particularly in the fourth quarter.
So what is it? The credit loss series for a bank? No – but it is a bank.
It is – wait for it – the quarterly net interest income for bank of America measured in millions of dollars.
It’s a good number to be big – and it is getting bigger rapidly now.
The fee income is also growing but only if you net out trading losses.
Felix Salmon objected (quite strenuously) to my pre-tax provision number in the long post. His objection is here.
Well here is the oddity. Other than for banks with substantial trading income (or losses) the fourth quarter has been an absolute record at just about every bank I am looking at. Sure if your losses are huge then your net interest income could be going backwards (as per Corus bank). But that is the exception. If this trend continues (and I think it will) then my pre-tax, pre-provision estimate in the long note is dramatically low whereas Felix was sure it was high.
Saying something nice about banking is certainly not the common parlance in the blogosphere. Yves at Naked Capitalism for instance commented on this section – quoting from a WSJ article:
From the Wall Street Journal: Citigroup executives are attempting to strike a seemingly impossible balance: Run the business in a way that will please their new federal masters, but also help the bank rebound from $28 billion in losses over the past five quarters.Yves: That is another company-serving bit of spin. Does anyone think, with pretty much all advanced economies contracting and deleveraging likely to continue, that there are great profit opportunities out there?
Well yes Yves. Even with pretty much all advanced economies contracting there are opportunities in banking.
Indeed provided you can maintain access to funding the opportunities in banking are the best that they have ever been in my life. The margins are massive. Many people want (even need) to borrow money – and if you have money to lend you can select on the absolutely best credits. Your risk is much lower than it was on the average loan in the boom. The implied return on equity is much higher.
Of course they are happy days only if can maintain your funding (far from being a given) and you do not have losses so big from the boom that you will be wiped out (also far from being a given).
But in the past most banks that have got into trouble have been recapitalised by pre-tax, pre-provision earnings. And at the moment pre-tax, pre-provision earnings are going up.
For the record this is very different to Japan. In Japan bank spreads collapsed to 30bps. They did this because of the vast excess deposit bases at zero interest rates. But I cannot find another banking crisis in which bank spreads have fallen. Does anyone else know one?