Bankers

[doubleup]

I assume you're talking about market makers. Market Makers provide pricing and liquidity of a particular financial instrument, and are able to buy and sell at their respective prices. They earn their commission from the spread between their bid and offer price. There is no 'fish' in this kind of sense.

I know this - I don't see why skimming a bit of profit from trades merits huge bonuses

Bankers, on the other hand, deal with mergers, acquisitions, and other equity and debt financing deals. They earn money through selling their services. The deals are quite huge in terms of money involved, and therefore they earn relatively large amounts of money.

Well obviously this kind of stuff has got more difficult because of the credit crunch - but the only reason they are functioning at all is taxpayers money.


I honestly don't begrudge talented ppl a fair reward, but I have yet to see evidence of what these ppl do that merits it.

[StuartHopkin]

I assume you're talking about market makers. Market Makers provide pricing and liquidity of a particular financial instrument, and are able to buy and sell at their respective prices. They earn their commission from the spread between their bid and offer price. There is no 'fish' in this kind of sense.

I know this - I don't see why skimming a bit of profit from trades merits huge bonuses

Bankers, on the other hand, deal with mergers, acquisitions, and other equity and debt financing deals. They earn money through selling their services. The deals are quite huge in terms of money involved, and therefore they earn relatively large amounts of money.

Well obviously this kind of stuff has got more difficult because of the credit crunch - but the only reason they are functioning at all is taxpayers money.


I honestly don't begrudge talented ppl a fair reward, but I have yet to see evidence of what these ppl do that merits it.

Sunny's posts are great, and v insightful into some of whats happened.

There is a lot to blame on the Americans who forced people to triple A stamp debt bundles that werent close to that standard.

You seem to be tarring everyone with the same brush, and there will be many bankers who have still made a fortune for their employers. Why would you see evidence of this?

I get paid fairly, do you need to see what merits it? You may, but you wont.

[Free_Rollin]

I know this - I don't see why skimming a bit of profit from trades merits huge bonuses

The volume traded by these guys is phenomenal. You're dealing with a range of clients, day in day out, you're buying them instruments, you're selling their instruments, it all adds up. Now, secondly, what you see in the media about bonuses is not applicable to all traders in the city. You have to be pretty good in what you do to even keep your job, let alone earn 6-figure+ sums. Also, the media doesn't often clarify the role of the trader they are speaking about. They may be speaking about 'prop' traders, which trade on behalf of the bank. This is different to market making, since they speculate on stocks, just like an investor would. If a prop trader is running a huge book, then their pay is bound to be huge, since it is often performance related.

Going back to my second point, remember not everyone is handsomely compensated like the media suggests. For example, Dresdner Kleinwort, a German Bank which no longer exists, didn't pay any of their staff bonuses one year. There was a lot of talk about this in the city, but outside of it, barely anyone knows this. So remember the old trick, the media tells you what it wants to tell you.

End of the day, these guys make, or well used to make, shit loads of money for the bank. If the bank doesn't compensate well for their efforts, they will simply move to a bank who will. It is a very cut throat competitive industry.

Well obviously this kind of stuff has got more difficult because of the credit crunch - but the only reason they are functioning at all is taxpayers money.


I honestly don't begrudge talented ppl a fair reward, but I have yet to see evidence of what these ppl do that merits it.

Not true. Only banks like HBOS,  LLoyds and RBS took bail out money from the goverment. Banks such as Barclays decided to raise it's own funds. It is true that banks like Citigroup, a large US bank, took federal bailout back in 2008, however you have to understand that this is needed. If the largest banks would suddenly all just go under, the economy would totally collapse, much more than it has done. The federal bailouts are necessary to try and recitfy the problems which arose from the subprime mortgage crisis. Businesses, home owners, etc all depend on banks and other financial institutions, and if the goverment allowed these to collapse, it would affect millions much more severely than now.

Also, a lot of the goverment bail outs are only short term, while pieces of the company/bank are sold off or while the bank raises it's own capital. For example, only today Bank of America has announced to pay back nearly $21billion of the fed's bailout.

Sunny's posts are great, and v insightful into some of whats happened.

Cheers Stu. I like talking about this kind of thing - lol sad I know. Obviously, I've barely touched the surface of it all. The ins and outs of it all are far too complicated to even think about!

[Free_Rollin]

Just realised I'm probably going to get a tl;dr response. FML.

[Ironside]

tl;dr

well i did but didnt want to disapoint

[neeko]

No one is answering my question - who are the "fish" the traders make their money from?

this will be tl/dr btw.

What the media call "bankers" cover many different jobs - any  of these could make million dollar bonuses.

When Rolls Royce sell an aero engine for £100m to a middle east airline (for delivery in 2012) they pay loads in banking fees which go into the banking bonuses in London.

First the airline will pay $160m so a forex trader is needed to exchange the dollars to pounds.

Also the money will arrive in 2012 so they will have a forward contract to ensure that £1=$1.6 in 3 years time.

Steel, copper, exotic materials are going to be needed in 2 years to make it, but as the price of the finished engine has been decided now they need to fix the cost of the materials, so they don't see the prices double before they buy them. So a commodities trader is needed to buy forward contracts to buy these metals at a fixed price in advance.

As the engine is being built RR are going to have costs but no income till the end of the contract, so they will needed finance to pay for this. They can have equity capital so needing a rights issue/ secondary offering, giving fees to investment bankers who prepare the deal, underwriters, brokers etc etc. Or there is debt so needing bonds prepared and underwritten and sold.

All these people are involved and they don't even have interest on a bank loan to pay yet.

On the otherside of these financial transactions is another company needing the opposite banking services, banks in London just sit in the middle and take a small piece of every transaction, with the employees getting a bonus from doing this well.

Without the banks sitting in the middle of these transactions then no compay would have the certainty to build anything.

Getting rid of the best people from RBS and Lloyds will just mean this money will go to Barclays, Goldman, JP Morgan not to us the taxpayers who are the shareholders in RBS.

[Jon MW]

...

Getting rid of the best people from RBS and Lloyds will just mean this money will go to Barclays, Goldman, JP Morgan not to us the taxpayers who are the shareholders in RBS.

On the other hand, surely politicians know how to run banks better than actual bankers?

Just like they know how to run schools better than teachers and hospitals better than doctors.

[henrik777]

Wow it actually sounds like bankers never make a loss and we should take the business to the edge of financial ruin so they can get massive rewards for making the companies so successful.

Sandy

[neeko]

Wow it actually sounds like bankers never make a loss and we should take the business to the edge of financial ruin so they can get massive rewards for making the companies so successful.

Sandy

Northern Rock went bust because the mortgage adviser in Hexham sold a 125% mortgage on a property that dropped by a fifth. (well lots of these) and then forgot to get any savings in to cover the money that was going the other way.

Bradford and Bingley went bust because it lent 90% BTL mortgages on shoeboxes in Leeds and Liverpool that halved in value, and lend loads on "liars Loans" where they didn't even check if a person had an income and then forgot to get any savings in to cover the money that was going the other way.

HBOS went bust because of all of the above and then lent billions to developers to build empty office blocks as well.

RBS went bust because it spent 71bn euros on ABN Amro but it wasn't worth anything

These bankers in the city that the media hates so much, really had less to do with the problems than they make out. But i am sure they wont lets this get in the way of a story.

[StuartHopkin]

Wow it actually sounds like bankers never make a loss and we should take the business to the edge of financial ruin so they can get massive rewards for making the companies so successful.

Sandy

Can we have a little explanation on the above? I currently dont have a clue what your talking about.

[henrik777]

http://www.iii.co.uk/investment/detail?code=cotn:MCX.L&display=discussion&action=detail&id=5554287

http://business.scotsman.com/alliedirishbank/Missing-trader-hunt--as.2300463.jpg

http://www.thisismoney.co.uk/markets/article.html?in_article_id=443263&in_page_id=3

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4167414.ece

http://www.independent.co.uk/news/business/liffe-trader-loses-pounds-750000-on-futures-bet-1111867.html

http://www.thisislondon.co.uk/standard/article-23759098-basketball-chief-kills-himself-after-trader-loses-pound-12m.do

http://www.channel4.com/news/articles/business_money/london+oil+trader+loses+1636m/3248272

http://www.dailymail.co.uk/news/article-1197278/Rogue-oil-trader-lost-firm-6million-pushing-price-month-high.html

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/2785306/Lone-wheat-commodity-trader-loses-70m-bundle.html

http://management.silicon.com/itdirector/0,39024673,11012045,00.htm

http://www.guardian.co.uk/commentisfree/2008/jan/28/comment.stockmarkets

http://www.dw-world.de/dw/article/0,,3876616,00.html


Investment banking (including trading) has caused the downfall. Traditional banking hasn't caused the significant issues seen now. During the early 90's banks didn't go bust even when repossessions were huge due to a recession.

Sandy

[StuartHopkin]

Agree with the above, but who said bankers never make a loss, and why would we push it to the edge of financial ruin?

Neeko's post above is also correct.

The debt packagin in nvestment banking caused the huge problem, but specific things happened to certain banks to push them over the edge.

HSBC for example didnt require any help at all

[henrik777]

http://richard-wilson.blogspot.com/2009/09/hsbc-hedge-fund-losses.html

Hsbc obviously have been run better but the traders didn't help.

RBS have had more than 71bn invested including the bad debt insurance etc etc if i'm not mistaken.

Sandy

[neeko]

http://richard-wilson.blogspot.com/2009/09/hsbc-hedge-fund-losses.html

Hsbc obviously have been run better but the traders didn't help.

RBS have had more than 71bn invested including the bad debt insurance etc etc if i'm not mistaken.

Sandy

That was not HSBC's money it was other investors money so not relevant to the solvency of the bank.

With your previous links - none of them had anything to do with the solvency of banks.

Correct the 71bn was the amount RBS paid for the ownership of the bank, the assets they purchased were many times this amount.

Most of the banks in the city are like poker sites, they sit there and take in the rake, they are not the poker players who go allin. Even those that have prop. trading desks use BRM so losing a buyin is standard, and does not affect them.

[Free_Rollin]

tl;dr

well i did but didnt want to disapoint

Lol, I appreciate you taking my feelings into consideration.

Northern Rock went bust because the mortgage adviser in Hexham sold a 125% mortgage on a property that dropped by a fifth. (well lots of these) and then forgot to get any savings in to cover the money that was going the other way.

Bradford and Bingley went bust because it lent 90% BTL mortgages on shoeboxes in Leeds and Liverpool that halved in value, and lend loads on "liars Loans" where they didn't even check if a person had an income and then forgot to get any savings in to cover the money that was going the other way.

The above is pretty much what the UK media covered. Just to let everyone know, the above are not investment banks, and are not directly involved with them.

RBS went bust because it spent 71bn euros on ABN Amro but it wasn't worth anything

Lol, yet I'm pretty sure Goodwin said 'I am happy we bought what we thought we bought.'

These bankers in the city that the media hates so much, really had less to do with the problems than they make out. But i am sure they wont lets this get in the way of a story.

Exactly. Most of the general public is clueless about what happend, and so when they hear about so and so making hundreds of thousands in bonuses, they start moaning. Not really their fault either, they can only go by what is told to them by the media.