Posted on 03/20/2015 5:10:35 AM PDT by thackney
Citigroup Inc.,Goldman Sachs Group Inc.,UBS AG and other large banks face tens of millions of dollars in losses on loans they made to energy companies last year, a sign of investor jitters in a sector battered by the oil slump.
The banks intended to sell the loans to investors but have struggled to unload them even after cutting prices, thanks to a nine-month-long plunge that has taken Nymex crude futures to their lowest level since 2009.
The losses mark a setback for Wall Street, after global banks earned $31 billion in fees over the past five years by financing energy-company stock sales, borrowing and mergers-and-acquisition transactions, according to Dealogic.
Wall Street’s losses on the loans could have a chilling effect on some oil companies’ ability to fund their operations as investors take a more cautious view of the sector.
“We’ve been pretty shy about dipping back into the energy names,” said Robert Cohen, a loan-portfolio manager at DoubleLine Capital who passed on some loans Citi was trying to sell. “We’re taking a wait-and-see attitude.”
Energy-sector deals have been a bright spot at a time when once-lucrative businesses, such as fixed-income trading and consumer lending, are flagging thanks to tighter rules, low interest rates and uneven economic growth, analysts said.
Investors say the energy bust doesn’t pose a great risk to the banks akin to 2007-2008, when they held hundreds of billions of dollars of souring mortgages and corporate loans.
“We often go through these periods,” said Sherif Hamid, vice president of high yield at AllianceBernstein LP, who helps oversee $35 billion of investments. “We saw it in Europe during the sovereign crisis where banks needed to sell at prices where buyers were willing to step in, even if it meant taking a loss, but it doesn’t mean the_market is closed.”
(Excerpt) Read more at wsj.com ...
Ultra Petroleum (UPL)is one such firm. Oh man, what a debt load they have.
http://fuelfix.com/blog/2015/03/17/quicksilver-resources-seeks-bankruptcy/
Quicksilver CEO Glenn Darden said the firm didn’t have any viable alternatives to bankruptcy – including asset sales after a period of marketing – that would fix its liquidity and capital structure issues.
The firm’s voluntary petition indicated it has $1.2 billion in assets and $2.4 billion in liabilities. It had skipped an interest payment in February.
Hoping for another taxpayer funded bailout. I’d want to see a complete outside audit before I believed that these institutions were in as bad of a shape as they claim
You can step right up and write them as big of a check as you like. I believe I'll keep mine.
Noticed they were seeking permission to keep paying royalties.
Stop paying royalties and they loose their lease. The well will revert to the mineral owners.
And loose the asset they have.
For creditors to regain even part of their money, they need to keep the leases, probably until they can find a buyer.
For an private individual/company buying leases that aren’t held by production or activity is akin to buying a fart in a hurricane.
Get a govt bailout on these loans and I can bet the court will declare the terms of the leases are suspended.
Mineral owners would then have to pay for the court cost to fight it if they want to.
Govt will suddenly have control of a huge amount of private property.
They were asking permission to continue paying royalties. We were discussion leases that are already in production.
I was talking about if there is a govt bailout of the banks.
Not just this one company.
The govt will want something as a way to get their money back. Control of the leases is what they would be going after.
Problem is most of the bankers don’t have a clue about the oil business.
No concept of the boom and bust cycle.
In their minds it was boom all the time because they are too young to have known anything else or they never had any dealings with oil companies before.
Most don't, but surisingly some do.
I've got a friend from my church, a petroleum engineer, who has spent decades as a direct employee of a major bank. They have a small group that have always been on staff to actually review the logs, seimic, etc to recommend value on a potential field prior to lending.
It is a neat little niche job; he has always worked from his home. It doesn't pay as well as directly in the oil patch, but decently and he doesn't wear hards, walk in the mud or have a commute.
But predicting what that oil will be worth in a couple years, nobody really knows. I don't believe anybody was predicting today's prices 2 years ago.
Anybody that bought the debt below 50% will be OK.
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