A year ago, Barclays (BCS) and Royal Bank of Scotland (RBS) were on the brink of collapse.
The banks are now in a healthy position.
But the big banks are far from finished with their schemes to get rich, according to a new report from Credit Suisse, the bank’s chief economist.
The world’s biggest and most powerful banks are taking advantage of the financial crisis to borrow more money at lower interest rates and spend it on acquisitions and acquisitions of other companies.
Credit Suise estimates that the banks are spending up to £3.5tn of their own money, which they can spend on acquisitions of private companies.
And that is just the ones that need borrowing, Credit Suiser says.
The big banks can also borrow money from their own subsidiaries to finance acquisitions.
“They are using the financial crash as a lever to get into businesses that they can then use to generate further profits,” said Credit Suisers chief economist Adam Kyncl.
“If you were to look at the top 10 banks globally, you would find that they have invested billions of pounds of capital in acquisitions and acquisition activities,” he said.
These include buying up other companies, like Amazon, which is the biggest customer of the Royal Bank.
“For the bank, that’s the big win.
That’s a huge revenue stream, a huge cost, and that’s also an opportunity to do acquisitions of companies that aren’t going to be profitable, so it makes sense,” said Kynce.
In fact, Credit Siser’s research shows that a quarter of the deals they look at involve acquisitions of the other banks.
“This is all in line with the expectation that the bank will be in a position to borrow even more capital to buy businesses that are going to become profitable in the future,” he added.
The latest acquisitions that have come to market include US hedge fund BlackRock, which owns about £2tn worth of shares in the big three banks.
Another example is the acquisition of US retailer Nordstrom.
The retail giant is now worth about £600bn and is a target for big banks.
Nordstrom has seen its share price plummet since the start of the crisis, but it still manages to generate a lot of revenue.
And it has the option to make another £150m by selling a majority stake in its own clothing chain, which will help boost its earnings.
So far, the retailer has not announced any plans to sell.
“I think it’s important for retailers to have that diversified revenue stream,” said Dan Siegel, senior vice president of research at Credit Suis.
But what about the banks?
“What I find surprising is the number of acquisitions they are making,” said Paul Blum, chief economist at Credit Sisers.
“Most of the acquisitions that are being made are by the big five banks,” he continued.
“And they have been going on for years.
The acquisition of Target and the acquisition by Amazon have been well-publicised.
So I would argue that the acquisition trend is very similar to what we saw in the 2008 financial crisis.”
The banks can’t go back to their pre-crisis behaviour The banks also haven’t been able to go back and re-inspire themselves, which has made it harder for them to grow.
“The problem for banks in the past, was that they were so entrenched in a certain way that they could not get out of it,” said Blum.
“There was an almost complete disconnect between what was happening on the balance sheets and what was actually happening in the markets.”
Blum added that the biggest challenge banks face in the years ahead is that they will need to grow in a different way.
“In the past the big players in the economy were able to do that by creating large companies,” he explained.
It’s also the big ones that are having to scale up. “
What is happening in Europe and the US is that it is not just the big companies that are seeing the damage.
I think the big challenge for the big bank is that there is an even bigger challenge for banks to manage.””
So what is the big problem for the banks in these years ahead?
I think the big challenge for the big bank is that there is an even bigger challenge for banks to manage.”