These last few years have been excellent for banks in UK/US. Commercial banks were lending record amounts on mortgages, credit card and overdrafts as well as underwriting huge LBOs and commercial paper. Some got so much money they set up private equity arms, special purpose vehicles (SPVs used for buying mortgage books, loans and offering credit default protection) and the like so they could lend to themselves at an arms length. Others got fat of their corporate banking arms who now were on top of bond issuance leagues and so forth. Investment banks, hedge funds, private equity firms, all raked in record revenues.
The last month has been a nightmare as the waiters brought the bills. More so the last week. Barclays for example fired their head of the section that set up SPVS, have had two "technical accidents" that have led to them cap in hand to the Bank of England to borrow overnight funds at 100bps higher than LIBOR; had to bail out one of the SPVs they sponsor at a cost of £1.6bn and will have to bail another one next week. Lehman closed its subprime mortgage arm in US, laying off 1,200 jobs and another 800 in Europe, Goldman Sachs had to bail out a SPV.
Now the latest rumour today is that a parent of one of the largest Kenyan banks is facing liquidity crunch and may (stretching it a bit I think) even go under.
Lesson of the week: Look at the prices before you become a glutton!
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