He noted many things in his 筆記... This part is my favourite...
都唔知邊個 PK 發明看金融股只看ROE不看ROA，ROE只是ROA乘一個扛杆
Want to know the PK who invented that? Bankers.
But in a world where no one defaults... who cares about meagre Return on Assets.
If I had $10 capital, and I can borrow $390 to do $400 of business (40x leverage - less than Fannie, Freddie and Deutsche Bank).
My cost of interest is 5%, my return on assets is 6%. Assuming no one defaults or if mortgages, full recovery because of ever rising house prices... My return is 1% of $400... or $4...
$4 profit on $10 capital. Every year.
But even if only 1 year... After the first year, who ever came up with that plan in the bank will already have received a nice big bonus. And bought an apartment in 西九...
Also, everyone reading this blog who is at or was in business school. You can throw whatever you have learnt about securitization out of the window and pretended those classes never happened.
And if possible, it is time schools taught about defaults when teaching banking at all levels... Even Form 4 + 5 level. All I learnt was the credit creation process... And never about bank runs, defaults and wealth destruction.
How will capital be allocated going forward? Well... I have been seeing a lot of HSBC commercial banking ads lately on CNBC.