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Presenting The World's Most Profitable Hedge Fund Ever: FRBNY LP

Tyler Durden's picture





 

When one has $2.9 trillion in costless AUM (because if the cost is breached, one just doubles down, especially if one prints the money), it is not all that surprising to generate $77 billion in profits in one year (think of the hubris emanating from that particular year end letter), or even $385 billion in profits in the past 10 years. Yet it is still a stunning number considering the rest of the $2 trillion hedge fund industry lost about 10% in 2011. Which is why we all bow down to what is without doubt the world's most lucrative and profitable generator of P&L in history: the Federal Reserve, which for the second year in a row has printed (pun intended) over $70 billion in profits. And who is the lucky LP? Why the US Treasury of course, which for the second year in a row will pocket all the proceeds from PM Ben's immaculate trading perfection. Of course, there is one caveat for this spotless performance sheet: what happens when Fed interest expense surpasses interest income? But why worry - everyone tells us this can never happen, so it obviously can never happen...

The Fed's P&L:

From the Federal Reserve:

The Federal Reserve Board on Tuesday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $76.9 billion of their estimated 2011 net income to the U.S. Treasury. Under the Board's policy, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury.

The Federal Reserve Banks' 2011 estimated net income of $78.9 billion was derived primarily from $83.6 billion in interest income on securities acquired through open market operations (U.S. Treasury securities, federal agency and government-sponsored enterprise (GSE) mortgage-backed securities, and GSE debt securities). Additional earnings were derived primarily from realized gains on the sale of U.S. Treasury securities of $2.3 billion, foreign currency gains of $152 million, and income from services of $479 million. The Reserve Banks had interest expense of $3.8 billion on depository institutions' reserve balances and term deposits.

Operating expenses of the Reserve Banks, net of amounts reimbursed by the U.S. Treasury and other entities for services the Reserve Banks provided as fiscal agents, totaled $3.4 billion in 2011. In addition, the Reserve Banks were assessed $1.1 billion for the cost of new currency and Board expenditures and $282 million to fund the operations of the Bureau of Consumer Financial Protection and Office of Financial Research. In 2011, statutory dividends totaled $1.6 billion and $375 million of net income was used to equate surplus to capital paid-in.

The preliminary unaudited results include valuation adjustments as of September 30 for Term Asset–Backed Loan Facility (TALF) loans and consolidated limited liability companies, which were created in response to the financial crisis. The final results, which will be presented in the Reserve Banks' annual audited financial statements and the Board of Governors' Annual Report, will reflect valuation adjustments as of December 31.

The attached chart illustrates the amount of Federal Reserve Banks' residual earnings distributed to the U.S. Treasury from 2002 through 2011 (estimated).

 


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Tue, 01/10/2012 - 13:38 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

Of course, there is one caveat for this spotless performance sheet: what happens when Fed interest expense surpasses interest income?

Rest assured, there will be a sufficient scape goat in place.

Tue, 01/10/2012 - 13:41 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Mahmoud.

Tue, 01/10/2012 - 13:47 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

I pray it is not Ron Paul, but maybe he could pull a suprise upset against the big banks like Andrew Jackson did with his victory over Biddle and the Bank of the United States.

Tue, 01/10/2012 - 13:53 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Judging by the latest out of NH you need not worry. Four more years of hope and asking for some change it is.

Tue, 01/10/2012 - 14:02 | Link to Comment SheepDog-One
SheepDog-One's picture

Did anyone ACTUALLY think that Central Bankster perfect puppet ObaMao was in ANY danger of being overthrown? Maybe the same people who think 'QE to infinity' and ZIRP4EVA' might have believed it.

ObaMao just announced he no longer has any use or need for congress or the courts...and the crowd went wild!

LOL people can keep believing in 'muddle thru' and that theyll be assured Goldilocks prices for all the food and gas they want 4EVA, not too inflated....not too deflated....dream on.

Mon, 01/30/2012 - 14:25 | Link to Comment JW n FL
JW n FL's picture

 

 

Unless Ron Paul got elected.. how much change would be happening?

and!

even if Ron Paul was elected.. how much change would really happen?

Ron Paul Can NOT! make Congress and the Senate do anything AGAINST! the *River of Lobby Dollars flowing from Wall Street.

*(considering Wall Street has a 0% FED Window to draw down from.. the Lobby monies {when barrowed from the FED} will pay for themselves come tax time! $1 in. $59 out. That’s a 5800% return on political investment. Not bad. | http://priceofoil.org/2012/01/26/one-dollar-in-fifty-nine-out/ )

 

and even if Ron Paul started making too much noise? and finger pointing.. let alone calling out the Lobby Whores!

how long would it take for the Secret Service to stand done? http://www.youtube.com/results?search_query=secret+service+stand+down

The ONLY! way America will see any change is when the Powers that Be.. want more of a Tax Break or to take the Guns away along with all the other rights they have already stolen while the sheepish consumers slept their children’s futures away!

 

 

UBS Bloomberg CMCI Silver USD ETC 

15.16% 

-15.82% 

126.26%

30.70%

-

-

UBS Bloomberg CMCI Silver EUR Hdgd ETC

15.21%

-16.07%

125.37%

30.39%

-

-

UBS Bloomberg CMCI Silver CHF Hdgd ETC

15.08%

-16.21%

124.49%

30.06%

-

-

 

Tue, 01/10/2012 - 13:39 | Link to Comment GOSPLAN HERO
GOSPLAN HERO's picture

Thin air funny money.

Tue, 01/10/2012 - 13:40 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Great. We're all set for a couple of weeks...

Tue, 01/10/2012 - 13:41 | Link to Comment emsolý
emsolý's picture

Isn't there a saying that the Fed and its money are easily parted?

Tue, 01/10/2012 - 13:55 | Link to Comment slyhill
slyhill's picture

I think that's "the Fed and its money are easily printed"

Tue, 01/10/2012 - 13:42 | Link to Comment slaughterer
slaughterer's picture

Why don't they give that distribution money back to the taxpayers?  

Tue, 01/10/2012 - 13:46 | Link to Comment Irish66
Irish66's picture

you aren't from this country, are you?

Tue, 01/10/2012 - 13:57 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

It goes towards the national debt I believe.

Tue, 01/10/2012 - 13:58 | Link to Comment SheepDog-One
SheepDog-One's picture

Put it towards the national debt....yea that'll buy us another week, maybe 2.

Tue, 01/10/2012 - 13:44 | Link to Comment Hustler Elite
Hustler Elite's picture

"In 2011, statutory dividends totaled $1.6 billion"

 

Not bad for income earned from money printed.

Tue, 01/10/2012 - 13:46 | Link to Comment HANKREARDON
HANKREARDON's picture

Who gets the "payment of dividends" mentioned in the FED statement?  Nevermind, I don't want to know.

Tue, 01/10/2012 - 13:52 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

$79 billion is a pittance compared to the money made off the "privatize the gains - socialize the losses" banking franchises controlled by the United States Federal Reserve.  Does $800 Billion in TARP money ring any bells?

Tue, 01/10/2012 - 14:01 | Link to Comment Lets Hang Parliament
Lets Hang Parliament's picture

The banks who all have shares in the wretched thing including of course the residents of 200 West St....

Tue, 01/10/2012 - 13:50 | Link to Comment Overflow-admin
Overflow-admin's picture

RAEP Inc.

Tue, 01/10/2012 - 13:50 | Link to Comment max2205
max2205's picture

Trading against the Fed is no fun

Tue, 01/10/2012 - 13:51 | Link to Comment junkyardjack
junkyardjack's picture

Congress demands to know where the money was put so they can front run any investments.  There's only room for one crime syndicate in this country

Tue, 01/10/2012 - 13:55 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

+1

Funny... because it's true.

Tue, 01/10/2012 - 14:05 | Link to Comment SheepDog-One
SheepDog-One's picture

Demands to know? No question all the congress inside traders have already been given all info on where to cash in on it all and when.

Tue, 01/10/2012 - 13:55 | Link to Comment SheepDog-One
SheepDog-One's picture

Right, 'reality' can never happen again! 

Suuuuure.

Tue, 01/10/2012 - 13:56 | Link to Comment Anarchyteez
Anarchyteez's picture

Ready, set, PONZI!

Tue, 01/10/2012 - 14:19 | Link to Comment HarryM
HarryM's picture

Leaving day traders to blow dogs for quarters

Tue, 01/10/2012 - 14:14 | Link to Comment Mercury
Mercury's picture

Printing money, buying (your own, really) bonds and collecting the interest....now that's alpha!

The government's equity portfolio isn't so sexy though:

PHDC REV C 177622 [GO]

update:  Hey, remember Bruce Krasting's hypothetical Treasury maneuver to swap debt for preffered stock with the Fed? http://www.zerohedge.com/article/tim-and-ben-one-one  Yikes.

Tue, 01/10/2012 - 14:02 | Link to Comment Seal
Seal's picture

I'd LOVE to know how much they made selling puts on Treasuries

Tue, 01/10/2012 - 14:03 | Link to Comment roy10
roy10's picture

The FED will shrink its balance sheet little by little as its been doing during the past few months. Three years from now, when ZIRP ends, the balance sheet should be small enough that losses will be limited from rising rates.

Tue, 01/10/2012 - 14:04 | Link to Comment SheepDog-One
SheepDog-One's picture

YEA sure....

Tue, 01/10/2012 - 14:07 | Link to Comment Tyler Durden
Tyler Durden's picture

The Fed's balance sheet just hit an all time record last week.

Shrinking?

Tue, 01/10/2012 - 14:26 | Link to Comment roy10
roy10's picture

You're right, It hit the all-time record last week (then shrank this week). Assuming no QE3  (and unless the market crashes there will be no QE3), the balance sheet will start shrinking. Should be under $2T by the end of 2012.

Tue, 01/10/2012 - 14:39 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

...the balance sheet will start shrinking. Should be under $2T by the end of 2012.

Only if they decide to once again mark-to-market all those MBS and assorted other crap asets transferred off the banks' balance sheets.  That just isn't going to happen because the FASB 157 rule changes are NOT TRANSIENT, and even if they were the Fed's specific holdings are NOT TRANSPARENT, so who would ever know?

Tue, 01/10/2012 - 14:07 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Are you stupid or something?

Tue, 01/10/2012 - 14:05 | Link to Comment DB Cooper
DB Cooper's picture

I see a correlation - the worse the economy the better it is for the FED.  Things that make you go HMMMMMM.

Tue, 01/10/2012 - 14:07 | Link to Comment SheepDog-One
SheepDog-One's picture

No fuckin WAY! The central banksters are actually just THIEVES and not 'working to control inflation' for us and trying to 'repair the economy' which THEY purposely destroyed? NAH that cant be true.

Tue, 01/10/2012 - 14:09 | Link to Comment DB Cooper
DB Cooper's picture

What if they marked their MBS holdings to market?

Tue, 01/10/2012 - 15:05 | Link to Comment NotApplicable
NotApplicable's picture

We'd all be too mesmerized by the sudden appearance of unicorns shitting Skittles to notice.

Wed, 01/11/2012 - 06:21 | Link to Comment StychoKiller
StychoKiller's picture

The phrase:  "Controlled descent into terrain," springs to mind...

Tue, 01/10/2012 - 19:21 | Link to Comment Augustus
Augustus's picture

They could show a nice profit.

Six months or so ago they had a deal to sell much of that to AIG at a modest profit.  Most on ZH were certain that the taxpayer was getting screwed because the portfolio was worth much more.  Now, after interest rate declines, you seem to believe there is a great loss.  You should feel at home among so many other nutters.

Tue, 01/10/2012 - 14:11 | Link to Comment AldoHux_IV
AldoHux_IV's picture

What a perverse and unnecessary system-- the amount they made in no way covers the damage they have amplified in risks because of all the 'printing'.

the Reserve Banks were assessed $1.1 billion for the cost of new currency and Board expenditures

Does that mean Benny and the jets get their own lear for board meetings or is Mrs. Bernanke demanding the lear for shopping trips because Mrs. Hildebrand showed that the entrepreneurial spirit can get central bankers in trouble.?

End the Fed.

Tue, 01/10/2012 - 15:11 | Link to Comment earleflorida
earleflorida's picture

President Obama by "Executive Order" will extend the 'contract agreement license" for the "Federal Reserve Act" Indefinitely!!!

per request 'Homeland Security', due to expire Dec. 21, 2012

ref: http://en.wikipedia.org/wiki/Executive_order

http://bit.ly/bcA86z

Tue, 01/10/2012 - 14:16 | Link to Comment Irish66
Irish66's picture

How can the ECB not cut rates?

Tue, 01/10/2012 - 14:19 | Link to Comment HANKREARDON
HANKREARDON's picture

are you expecting NEGATIVE interest rates?  Hard to 'cut rates' from zero.

Tue, 01/10/2012 - 14:23 | Link to Comment The Axe
The Axe's picture

if you buy tips real rates are negative dude??

Tue, 01/10/2012 - 14:23 | Link to Comment Paladin en passant
Paladin en passant's picture

2.65 percent return on AUM at EOY.  That's the best any hedge fund ever earned?  Methinks there's a bit of hysteria in the air today down at ZeroHedgestrasse today. 

Tue, 01/10/2012 - 14:35 | Link to Comment Lets Hang Parliament
Lets Hang Parliament's picture

Paulson would have bitten your arm off for 2.65% in 2011

Tue, 01/10/2012 - 16:26 | Link to Comment AnarchoCapitalist
AnarchoCapitalist's picture

That profit is AFTER the Fed has paid its member banks their 6% dividend. The insiders are profiting from the debasement of the average US citizen's currency.

Tue, 01/10/2012 - 19:17 | Link to Comment Augustus
Augustus's picture

The real owners should get it all.  The Fed member banks are also subsets of the US Treasury.

Keep digging.   You'll find a conspiracy theory that might be more plausible.  Look to the writings of Geo Wash or Before it is News.

Tue, 01/10/2012 - 19:13 | Link to Comment Augustus
Augustus's picture

Why would a Federal Reserve, owned only by private banks and secret individuals, ever send a dividend to the US Treasury?  Can one or two of the blovators who claim that the FRB is privately owned please explain how this transfer was allowed?

Tue, 01/10/2012 - 22:34 | Link to Comment earleflorida
earleflorida's picture

this in layman terms,... is a somewhat quick explanation summary overview, of how the frb works - it's not a long read and extremely informative - no bullshit reading between the lines

ref: http://www.bigeye.com/griffin.htm  [The Creature from Jekyll Island]

please note: ___ of the 12 federal reserve fractional banks' the New York Federal Reserve Bank has control of ~90% - 95% [perhaps more, but certainly not less]

Ps. also known as "The Mandrake Mechanism" ___ Big Daddy Warbucks,... yes, the guy with the black high-pot-stove hat, wild black bushy mustache, and a big cigar in the corner of his mouth --- that's the fellow, "The Game of Monopoly" was named after!  http://www.real-debt-elimination.com/real_money/mandrake_mechanism.htm  ***{sorry must google}

 

Mon, 01/30/2012 - 15:47 | Link to Comment Tsunami Effect
Tsunami Effect's picture

WTF is

"income from services of $479 million"

 

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