The world’s big banks would like to draw a line under their recent troubles.
The losses from the financial crisis, the costs of regulatory change and the fines from mis-selling and market manipulation scandals appear largely in the past.
For once, another sector is suffering a series of blows. Within a matter of months, the falling oil price has wiped as much as 25 per cent off the market values of the oil majors. But might the bankers be smiling too soon? Could the oil market turmoil become the banks’ next nightmare?
Last month, there was a hint of what might be around the corner, when it emerged that Wells Fargo and Barclays had exposure to big potential losses on an oil loan — specifically, $850m of funding granted earlier in the year to back the merger of US oil groups Sabine and Forest.
Attempts to syndicate the loan had failed amid a falling oil price. The banks, which led the fundraising, were left holding mark-to-market losses estimated at as much as 40 per cent.
Since then, the oil price collapse has only worsened. Last week, Brent crude hit a new five-year low of barely $60. That is nearly 50 per cent down on its summertime peak. The slight rally on Monday — triggered by the closure of two Libyan terminals — reversed by the end of the day.
The trend is great news for consumers. And the big losers are equally obvious — namely, the oil majors. Less clear, but potentially more noxious, is the impact on the banks that have supported the industry’s breakneck expansion over the past few years.
That Sabine-Forest financing was just one of many. Oil and gas financing has spiralled over the past couple of years, dominating the riskier end of the bond market. According to data compiled by Barclays, energy bonds now make up nearly 16 per cent of the $1.3tn junk bond market — more than three-times their proportion 10 years ago. Nearly 45 per cent of this year’s non-investment grade syndicated loans have been in oil and gas.
But investor demand has not matched the level of deals, with a troubling result: as much as half of the outstanding financing from the past couple of years may be stuck on banks’ books, analysts say.
New research from AllianceBernstein highlights the extent of US banks’ exposure. Wells Fargo tops the list.
It participated in $37bn of non-investment grade loans from 2012 to 2014. Only JPMorgan, with $31.7bn of deals, comes close.
Barclays and fellow UK banks HSBC and Royal Bank of Scotland are relatively low in the pecking order, with between $11bn and $12bn apiece. In between are five other North American lenders and Japan’s Mitsubishi UFJ.
There is a sanguine view of the oil price slump — that this is just how markets behave and that the price will recover in time.
But, to many, $60 oil looks like it is here to stay. Lower demand will persist for years, thanks to the weakening outlook for China and Europe, while supply has been expanded by booming US shale production and stubbornly high Opec production. If that view is right, there is a stark parallel with the US property market collapse that heralded the start of the 2008 global financial crisis — and upended banks along the way. Those lenders with oil exposure on their books may well be stuck with big losses.
Yet the banks with the biggest stakes in this high-risk market are among the most prized by investors.
Wells Fargo is one of the most highly valued banks in the world, enjoying a share price rise of 23 per cent this year. It is tempting to think that — like the other darlings of the post-crisis banking market, notably Standard Chartered and BNP Paribas — it is overdue a fall from grace. If Wells Fargo’s exposure was in line with the estimated industry average, that would imply a potential loss of about $8bn.
富国银行是全球最受投资者追捧的银行之一，其股价今年累计上涨23%。人们不禁会想，就像后危机时代银行业市场的其他宠儿、特别是渣打银行(Standard Chartered)和法国巴黎银行(BNP Paribas)一样，富国银行早就该失宠了。如果富国银行的风险敞口与人们估计的行业平均值一致，那将意味着它可能会遭受80亿美元左右的损失。
On the other hand, Wells has become such a machine of profitability that given its current earnings growth the bank could recover such a sum within five months. Other banks might not be so lucky.
So the latest muscle-flexing from regulators is timely. In the US, the Federal Reserve is further toughening the banks’ required capital ratios. Last week, it exposed a $22bn capital shortfall at JPMorgan alone. On Tuesday, the Bank of England is due to report back on UK bank stress test results. A simultaneous stability report from the Bank’s Financial Policy Committee is expected to zero in on the oil price, among other issues.
It isn’t time for banks to draw that line just yet.