Monday, October 15, 2007

Banks to Make a a Profit on American ABCP Bailout Plan

The Canadian ABCP bailout plan will allow the banks to make a good profit out of the unlucky holders of ABCP. Would the american banks also be making a killing with this plan or are the just being nice and trying to save the market?

Marc Carpani, VP of Mulvihill Capital, stated today on BNN TV that, similarly, the US banks will likely indeed make a good profit out of this $100B plan. However, the Canadian plan is still in trouble (deadline was today October 15), perhaps because the banks are having trouble with their own greed. Will the american banks be better in sharing the profits?

The Wall Street Journal reports that the plan means that some banks will profit from the problems their industry helped create. They will be paid fees for providing the financial backstop to the fund. In addition, the broker-dealer arms of the banks would be paid to raise capital. Bank of America highlighted the opportunity to generate fees in discussions leading up to the final plans, people familiar with the matter said."

The other issue is that $100B is just a drop in the bucket versus the $485 trillion that are reported to exists in derivates out of these ABCP instruments.

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