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Thu Apr 9, 2020, 07:50 PM

U.S. banks prepare to seize energy assets as shale boom goes bust

Source: Reuters

BUSINESS NEWS APRIL 9, 2020 / 5:38 PM / UPDATED AN HOUR AGO

Exclusive: U.S. banks prepare to seize energy assets as shale boom goes bust

David French, Imani Moise
5 MIN READ

NEW YORK (Reuters) - Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters.

JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N), Bank of America Corp (BAC.N) and Citigroup Inc (C.N) are each in the process of setting up independent companies to own oil and gas assets, said three people who were not authorized to discuss the matter publicly. The banks are also looking to hire executives with relevant expertise to manage them, the sources said.

The banks did not provide comment in time for publication.

Energy companies are suffering through a plunge in oil prices caused by the coronavirus pandemic and a supply glut, with crude prices down more than 60% this year.

Although oil prices may gain support from a potential agreement Thursday between Saudi Arabia and Russia to cut production, few believe the curtailment can offset a 30% drop in global fuel demand, as the coronavirus has grounded aircraft, reduced vehicle use and curbed economic activity more broadly.

-snip-

Read more: https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive/exclusive-u-s-banks-prepare-to-seize-energy-assets-as-shale-boom-goes-bust-idUSKCN21R3JI

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Reply U.S. banks prepare to seize energy assets as shale boom goes bust (Original post)
Eugene Apr 2020 OP
msongs Apr 2020 #1
FBaggins Apr 2020 #2
Finishline42 Apr 26 #3

Response to Eugene (Original post)

Thu Apr 9, 2020, 07:52 PM

1. so banks will get the assets back AND a huge fed bailout. its a win win for them nt

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Response to msongs (Reply #1)

Fri Apr 10, 2020, 09:33 AM

2. You're missing a step

Step one was - "Loan company ABC $500 million to purchase and develop land to produce oil - collateralized by that improved land"

They aren't "getting the assets back"... they're taking the collateral. But the collateral is no longer worth enough to repay the loan.

That's a loss... not a win win.

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Response to FBaggins (Reply #2)

Sun Apr 26, 2020, 12:20 PM

3. It's a big gamble by the banks

But first they have this hurdle to clear >>>

Big banks will need to get regulatory waivers to execute their plans, because of limitations on their involvement with physical commodities, sources said.

While the economic shut down for CoVid-19 is to blame for bottom falling out of oil prices it's going be a long time before oil gets above $50 / barrel. Years maybe/probably?

What's the chance that those assets never get back to a profitable level? Then you have all the costs in the meantime trying to keep them alive.

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