Whoa big news just after I write about Spanish banks.
All this reminds me of a conversation I had a long time ago at a banking conference in
I remember taking the guy (who worked in the finance department at A&L) through his own balance sheet. Amusingly I seemed to know it better than him. They had relatively few risks in the mortgage business – but they had taken considerable funding risks. The inter-bank funding was growing 25% per annum – and that funding is hot. They were also running out of capital. My clueless executive understood they were running out of capital and suggested that that was OK because when they ran low they would just sell the bank. The clueless fund manager thought that was fine because he could buy A&L waiting for the takeover. And maybe he made money so maybe he wasn’t so clueless – provided he sold on the rumour of the Credit Agricole acquisition…
But neither of them realised that the liability side of their balance sheet contained risks. My notes clearly say that the senior finance executive simply had never thought about the risks on the funding side.