Just read a report on the mortage market in the UK and assuming that the banks here are doing the same thing then it goes some way to explaining the super profits that they make.
If I have a profit margin of €2 on goods I purchase for a tenner my margin then is 20%. If the cost of the goods goes up then my margin will tighten. If the price goes down then I will probably end up passing some of those savings on to my customers becuase my competitiors probably will and I need to stay competitive.
When I borrow on my mortgage the bank quotes me a margin of say 1% above the base rate.
If the base rate is 4% the the bank charges me 5%. The banks profit margin is 20% to 25%. However when interest rates fell to 2% the bank continued to charge me a margin of 1% which meant that their mark up became 50%.
All of a sudden the bath that the AIB share price is taking makes absolute sense. Not only are the banks lending less but their margins are being severely affected by the huge drop in margins.
After riding the irish borrowers for the last ten years the banks must be under pressure now.
How would a normal business survive if their profit margins were cut in half?
They probably wouldn't unless of course their margins in the first place were so outrageously high that they were ripping us all off.
As they say on Aertel, "Tell me something I don't know"
The shares must represent a sell for the moment then??
If I have a profit margin of €2 on goods I purchase for a tenner my margin then is 20%. If the cost of the goods goes up then my margin will tighten. If the price goes down then I will probably end up passing some of those savings on to my customers becuase my competitiors probably will and I need to stay competitive.
When I borrow on my mortgage the bank quotes me a margin of say 1% above the base rate.
If the base rate is 4% the the bank charges me 5%. The banks profit margin is 20% to 25%. However when interest rates fell to 2% the bank continued to charge me a margin of 1% which meant that their mark up became 50%.
All of a sudden the bath that the AIB share price is taking makes absolute sense. Not only are the banks lending less but their margins are being severely affected by the huge drop in margins.
After riding the irish borrowers for the last ten years the banks must be under pressure now.
How would a normal business survive if their profit margins were cut in half?
They probably wouldn't unless of course their margins in the first place were so outrageously high that they were ripping us all off.
As they say on Aertel, "Tell me something I don't know"
The shares must represent a sell for the moment then??