The bulge-bracket is rising nicely this morning, with Goldman Sachs (GS) up $1.41, or 0.8%, at $180.91, Bank of America (BAC) up 15 cents, or 0.8%, at $18.80, JP Morgan Chase (JPM) up 32 cents, or 0.7%, at $46.08, and Citigroup (C) up 8 cents, or 1.8%, at $4.55.
That, despite a skeptical�piece in The journal his morning about the SEC’s investigation into banks’ use of “repos,” the financial gimmick at the heart of the Lehman Brothers collapse.
The Banks have been engaging in big trades quarter by quarter while bringing leverage to acceptable levels by quarters end, according to New York Federal Reserve Bank data cited in the article.
The question being, of course, will Washington ever be able to ensure banks are adequately capitalized with this kind of stuff going on?
Authors Kate Kelly, Tom McGinty, and Dan Fitzpatrick note that while the practice has gone on for years, it swelled last year:
The practice of reducing quarter-end repo borrowings has occurred periodically for years, according to the data, which go back to 2001, but never as consistently as in 2009.
Their key anecdote is a $60 billion Bank of America trade in mortgages last year:
Two Bank of America traders bought $40 billion of mortgage-backed securities from clients for one month, while at the same time agreeing to sell the securities back before quarter’s end, according to people familiar with the matter. This “roll” trade provided the clients with cash and the bank with fees. [...] A week later, however, the amount tied to the trade shot up to $60 billion, these people say, before dropping to $25 billion, one of these people said, appearing to some at headquarters that the group had defied the order to cap the trade. A bank spokeswoman said “the team was aware of and worked within its risk limits.”
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