zlacker

If the loans are such a good value, then why do the banks want to get rid of them so badly? Dumb investors...

>>zerosi+(OP)
That’s exactly the same as going into a furniture shop and going “if this furniture was so good, then why would they want to sell it so badly”. They’re a furniture shop - they make and sell furniture. There’s only so much furniture you need for yourself after all no matter how good it is.

Investment banks make investment products for investors. They do keep risk for themselves so you will find when they sell these loans they will often keep a slice, but they only need so much Oracle datacenter loan risk - they want to have free capital to find other opportunities to fund.

>>seanhu+hp
It is not the same and your metaphor is bad. Furniture generates revenue when sold, loans generate revenue just by holding them as there is an interest that needs to be repaid.

Hence the shop sells the inventory as fast as they can, while banks hold safe loans as long as they can unless they believe that aren't safe anymore or that they can make more money with something else.

>>marcyb+p61
Or want to diversify to reduce exposure, after all a loan inherently has a risk. Doesn’t mean ( it could ) it’s a fire sale a eggs basket situation

>>marcyb+p61
You understand how present value works right? Holding a loan on balance sheet generates a stream of income that extends into the future and has to be discounted and have credit value adjustments applied, which is very expensive because you have to then hedge the rate and credit risk on top of funding the actual loans themselves. Selling a loan has two benefits over this. Firstly it generates actual cash now which you can book right away and is real so doesn't need to have CVA and discounting. Secondly it gives you a mark to market price for any piece of the loan or similar loans which you are still holding in your book.

I'm not speaking theoretically here - I have been forced to sell loans for capital reasons because they were too expensive to fund even though they were all current, 100% money good and massively overcollateralized.