This past weekend, The Wall Street Journal wrote about repo, or repurchase agreements in "Investment Banks' Secret Cash Cow." They said, "Investment banks have made a nice little money-spinner out of a once broken trading strategy: The repo. But now that the secret is out, it risks losing its force. Repo desk revenues at the top-12 investment banks grew 21% between 2015 and 2017, data by research firm Coalition shows, even as overall income fell 6%. Traders say they've become highly profitable, too. Repos, or repurchase agreements, are an integral part of the world's financial plumbing, allowing investors and banks to borrow large amounts of short-term cash by selling a security and pledging to buy it back at a slightly higher price in the near future. On the other side of the trade, asset managers get access to the securities they want—often, ultra-safe government bonds." The piece adds, "A more efficient repo operation not only frees up capital; it can also bring in sales. When top clients' immediate funding and collateral needs are better met, they are more likely to pay big bucks for other services. With underwriting revenues down, investment banks need to lean more heavily on areas like prime brokerage -- which includes lending stocks to hedge funds so they can sell them short -- and so-called 'nonlinear' finance. The latter allows cash-rich behemoths such as private-equity firm KKR to buy complex assets like mortgage-backed securities."

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