Those Amazing, Magic Bank Profits -- II

From Floyd Norris of the NYT. Barclays Bank has discovered another route to instant profitability -- make a loan to yourself! Oh those clever banks.

As Norris describes it:

Barclays, the large British institution, announced a $3.1 billion loan today. And it also promised to keep the loan on its own balance sheet for a year, rather than sell off parts of it to other banks. Even after the year is up, it promises to keep most of the loan.

And who will get the cash from that loan? Barclays itself. It will also be able to report a large profit, of $2.2 billion, which is something every bank needs these days. And Robert E. Diamond, Barclays’ president, stands to take home $6.9 million of the money.

Barclays is selling its iShares business, which puts together exchange-traded funds, to a private equity firm for $4.4 billion, and financing the deal itself. So the cash stays right where it is, but a profit is posted. Mr. Diamond owns a stake in the business, so he gets to share in the bounty. (The bank says he was not involved in the negotiations.)

As with their American cousins, shares leaped on this news. One begins to feel less and less sorry for bank shareholders.