Three banks, three first quarter reports but has the risk profile changed?

Three banks, three profitable quarters. But hold the champagne. Strong trading results were behind the red ink at Citibank, Goldman Sachs, and JPMorgan. Core businesses remain weak; accounting quirks contributed to the bottomline. But the Great Recession is far from over.

The question I have: How have their risk profiles changed? Each has taken hefty sums of money from Uncle Sam via TARP but none has seen fundamental improvement to the business model. Trading gains don’t come without increased risk. A Citi spokesman told me that the bank has not taken undue risks (can you imagine him saying otherwise?). But something has to be up.Even with interest rates low, trading is by definition risky.


2 thoughts on “Three banks, three first quarter reports but has the risk profile changed?

  1. So, what did the risk-related stats in their reports say? Q/q and Y/y trend of VaR, Level III and Level II assets, sensitivities (to rates, curve twists, spread durations etc.) they disclosed for their cash and derivatives portfolios, number of actual trading days in the period when portfolio value fluctuated by more than a certain amount, etc.?

    Your basic thesis, “Trading gains don’t come without increased risk,” is plausible. But instead of simply asking “How have their risk profiles changed,” one can provide some numbers to help answer it. Of course, reported risk numbers won’t settle the question definitively. They might even conceal some shenanigans. But a peak at them would advance the story, and would surely lead to further fruitful questions.

    (In your third sentence, did you mean to write, “…behind the BLACK ink…”?

    • I spoke only to Citi about its risk position, which said its VaR remained unchanged. But it’s a pretty lame answer. VaR has been pretty much discredited as a measure of the kind of risk we are now really interested in (you can see my post at true/ for the details). After more bank earnings were in I was thinking about doing a risk survey to get a better picture of the trend. But, you know: The rates for blogging make most of us think twice before spending too much time on an issue. Even if I can’t answer the particulars the way readers might prefer, I hope it may get others with more time and means to investigate ideas that seem worthwhile.

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