Great article as usual thanks! One thought I have is that the revenue growth was somewhat intermediate without the hedging (18% growth). Do you have a concern on that as hedging may not be the reliable or consistent source of revenue (correct me if I am wrong)?
No, I'm not concerned because those gains were balanced by an equal drop in the fair value of their loans. So if rates stay flat, they'll have no gains from hedges, but similarly they'll also have no losses on fair values. They are meant to balance each other 1-for-1, which they have done very well so far. The point of that comment is just to highlight that if they were poorly managed and unhedged it really would have hurt them.
Had this on the to-do for a while. Thank you Chris for writing it, really enjoy your work.
Great article using understandable examples so the reader can follow along and actually understand instead of 25-50% comprehension. :)
Great article as usual thanks! One thought I have is that the revenue growth was somewhat intermediate without the hedging (18% growth). Do you have a concern on that as hedging may not be the reliable or consistent source of revenue (correct me if I am wrong)?
No, I'm not concerned because those gains were balanced by an equal drop in the fair value of their loans. So if rates stay flat, they'll have no gains from hedges, but similarly they'll also have no losses on fair values. They are meant to balance each other 1-for-1, which they have done very well so far. The point of that comment is just to highlight that if they were poorly managed and unhedged it really would have hurt them.
Got it, that makes sense. Balancing it out. Thanks for the reply!
Thank you for such an insightful article.