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Let’s dig into some of the Q4 bank earnings that came out last week. First up Bank of America which posted its largest full year profit in history $28.15 billion. (WSJ) So how did they accomplish such a feat, well let’s just see what their interest rate differential was, i.e. what are they paying depositors compared to the risk-free rate they earn off those deposits. Their deposit rate was 0.63% and LIBOR ended the year at 2.79% (FRED) which is a spread difference of 216 basis points. This spread at the beginning of 2018 was around 120 basis points. We know a 100 basis points doesn’t seem like much, but multiply that by $2.3 Trillion in assets, well you get the picture billions in interest capture just from paying out as little as possible and investing risk free overnight. What’s interesting is that investment banking and trading revenue fell 4.9% and 5.8% respectively. Makes you wonder with all that capital and all that insight, how their trading is so bad, what happened to all those golden goose algos?
As far as trading goes, Goldman Sachs didn’t fare any better as their FICC revenue fell 18% to only $882 million the lowest since 2008, all those high-powered ivy leaguers, we would expect just a bit more from this group. The real bread and butter were in the asset management unit which runs institutional and HNWorth money, it hit a record revenue of $7 billion, rest assure those fees aren’t going anywhere despite Fidelity’s push for zero fee structures.

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