From Art Cashin’s (the popular NYSE floor personality and trader) morning note:
And You Thought Lehman Was Leveraged: A large bank reported record earnings last week. The earnings weren’t just a record for the bank; they were the greatest one year earnings in the entire history of banking. Over thousands of years, no single bank has earned anything like this.
So, you wonder, why didn’t you hear much about it? Why were there no irate headlines about the “bailed out fat cat Wall Street bankers plundering the public yet again?”
Well, maybe the reason you didn’t see headlines like that was that, while the bank clearly benefitted from the bailout process, it wasn’t exactly a Wall Street bank.
The bank in question was the U.S. Federal Reserve Bank. In 2010, it earned a profit of $80.9 billion, more than any other bank ever – ever. They generously handed $78.4 billion over to the folks at the U.S. Treasury. The year before the Fed had paid a dividend to the Treasury of over $47 billion.
Somewhat ironically, the bulk of the earnings came from interest and trading gains on the nearly 2 trillion in “tainted paper” that the Fed sopped up in the “bailout”. Not a lot of tabloid headlines on that.
Lest you think the Fed is an always profitable money machine, there is another side. If lending were to suddenly pick up and money began to gain velocity, yields on the Fed’s inventory could shoot up leaving it with large losses on the positions.
But, as Scarlet might say – I’ll worry about that tomorrow.
For a little more on this, see Jim Pethokoukis on the scenario whereby the Fed might need a bailout >