Panic Below The Surface: "Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival"

Tyler Durden's picture

One week ago, when we commented on the latest weekly update from Credit Suisse's very well hooked-in energy analyst James Wicklund, one particular phrase stuck out when looking at the upcoming contraction of Oil and Gas liquidity: "while your borrowing base might be upheld, there will be minimum liquidity requirements before capital can be accessed. It is hitting the OFS sector as well. As one banker put it, "we are looking to save ourselves now."

In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn't rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS "It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months."

Which is bad news: as we reported late last week, the restaurant "recovery" is now over, so as these formerly very well-paid and highly skilled workers scramble to find a job, any job, they'll find that even the "backup plan" has failed, with not even the local McDonalds suddenly hiring.

From the latest Things we've learned this week

One Last Cigarette? Some comments that stood out to us during earnings include, "We are in a period of unprecedented uncertainty." "We are managing our business week-by-week, crew-by-crew and unit-by-unit." "We are in a generational downturn." “We are very bearish for the first half of the year.” “In the second half [of 2016], every tank and swimming pool in the world is going to fill…”


On the Precipice. Oilfield Service companies have reduced headcount by as much as 35% in some cases and the reductions continue as oil prices not only continue their decline but the argument for a strong price comeback gets more and more difficult to rationalize. It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months. People who had been saying that this is the worst downturn since the 1980’s are now thinking that this is a return to the 1980’s. There are reports of banks selling loans at cents on the dollar to try and ensure their own survival and bankruptcy courts and workout specialists are seeing their best market in decades.

Wicklund concludes with some even more troubling observations about the recent OPEC headline-induced volatility and the future price of oil:

Rolling On. What was originally a “surplus-induced” downturn is now turning into a global credit downturn, with economic demand and GDP continuing to decline. US corporate debt levels are close to all-time highs as a share of GDP and global monetary policy has very few levers left to pull. “Duration” has become the new buzzword, “survivability” appears to be the key investment metric and any lights in the tunnel appear to be dimming.


The Fix. Demand was going to be the bailout and specifically consumerled demand, however, just about every economic report issued seems to deny that possibility. It is easy to say that with demand growing and capitalstarved supply waning, reaching balance and beginning growth is inevitable. But it may not be as simple as that and the timing remains one key question. And that key question is one that everyone has an opinion on. Now, it appears that Saudi, Russia, Iraq and Iran MIGHT come to some agreement to cap production growth at January levels, which was up more than 280kbopd from December. The cap offers some positive, but it makes any production CUTS less likely.

All this, as global demand across every industry continues to contract and as central banks are now powerless to do virtually anything, means that the true lows in the oil price are still ahead of us.

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Latitude25's picture

Let me guess.  The banks are selling securitized energy loans to the muppet pension funds for pennys on the dollar and soon to be totally worthless.

J S Bach's picture

Oil IS a slippery substance.  TPTB will put it into gun barrels and the price will shoot right back up.

boattrash's picture

Oil IS a slippery substance.

...and in its crude form, the vapors are rather explosive.

Central Bankster's picture

The real lesson here for the central bankers should be this:


If you try to inflate assets, it will cause massive distortions in price (IE reinflating oil from$30 in 2009 to $110 a few years later) created a massive and misguided allocation of capital into new oil production.  Which now, all this mal-investment, is coming home to roost.  STUPID CENTRAL PLANNING BANKSTERS!

FreedomGuy's picture

Oil is a marker, a symptom. All those Chinese ghost cities and developments along with the steel, concrete, lumber, tile, and trucks to move it all...are fake. Oil is what sort of connects all these things. As Banskter says, inflating assets causes huge distortions when you do it, on both national and international levels.

I will add that labor laws with artificial labor pricing, (including cost of benefits) and locking up enormous blocks of capital through insane tax laws, Obamacare, and regulatory costs further reduces the ability to adapt to any coming adjustments.

All the starry-eyed people voting for Bernie think he and his minions can actually make this stuff work. They  cannot. They can only torture the markets further.

Latitude25's picture

I'd give credit to Bernie for one thing though.  He'll probably be good at distributing equitably the crumbs that are left after an economic crash.  With him we might even achieve the standard of living of Cuba today.

cheka's picture

saw this game a few years ago


nyc banks buy the 'toxic' loans at fraction of face.  frbny then buys them from the nyc banks at full face.

holiday bonus pool bitchez

VWAndy's picture

That was ol Bill Gross I think. He had Greenspan on his payroll to if Im not mistaken.

sun tzu's picture

Old bastard Buffett too

Antifaschistische's picture

I've mentioned this a few times...but in the 80's you SAW the economic crush all around you.  For those who do not live in our visit Houston, I'm telling you....something is very bizarre here that puzzles the shit out of me.....malls are packed, and you don't see crush anywhere...I don't get it.

...and I have NOTHING to gain from a crush, because I'll eventually get swept out to sea also...but it's just crazy here with construction at a non-stop pace.  Everyday of my life is like economic doomsday prepping in Houston.

U4 eee aaa's picture

The music has stopped but people are still dancing. The main stream media that everyone gets their dancing cues from has not told them the music has stopped. There are only hints and glimmers of trouble. Maybe a few anecdotes from friends and neighbors but nothing 'serious'...yet.

Those serious events will start creeping towards the front page and towards the top stories on the TeeVee. Then people with step out of their dancing euphoria, maybe for the first time in seven years, and see all the carnage around them.

That is when the crying will start

Mentaliusanything's picture

Correct! It's a bit like a large oil tanker making an emergency turn to avoid collision with rocks that are uncharted, the change in direction is painfully slow to avoid collision and because of the mass and velocity it happens over an extended time. Its as if your in slow motion. But you either make it or you crash. Bite your nails   

FreedomGuy's picture

Same thing happening in my city. The oil retreat should be throwing water all over the economic fires. However, everything, especially construction appears to be full speed ahead.

I wonder what sort of projection methodology they use and who consults on the projects. All Pollyanna's, I assume.

Beatscape's picture

Coming to a ticker tape near you: The 10(!) times upside Oil ETF, filled with all these toxic energy loans and oil companies teetering into bankruptcy. A fool and his money are soon parted.

VWAndy's picture

Bingo they are searching for bagholders now. Too bad there are no bagholders with pockets that deep.

venturen's picture

You mean the FED....who the Treasury backs with your money?

Groundhog Day's picture

Margin calls gentlemen, you know the rules of the exchange

Amish Hacker's picture

Looks like we're at the burning-the-furniture-to-keep-the-house-warm stage.

_ConanTheLibertarian_'s picture

Reminds of this true story: one day my mother's old home burnt down.

Turns out the owner had put it in on fire. He actually put the furniture outside first. I'm not kidding.

ebworthen's picture

"Fire Sale" comes to mind.

Racer's picture

As one banker put it, "we are looking to save ourselves now."


Total rubbish, the banks NEVER look to save themselves

buzzsaw99's picture

There are reports of banks selling loans at cents on the dollar to try and ensure their own survival...

smells like bullshit. which banks? which loans? how many cents on the dollar? how does booking a major loss ever help a bank?

Bank_sters's picture

Strangely, most articles I read are about how little exposure all the big banks have.  So who is holding the 2 trillion dollars of energy related debt that has been created over the last 12 years?

buzzsaw99's picture

makes you wonder. also, zh has reported that the fed has instructed the banks to NOT mark down their energy-related loan book. There are reports, whatever. There are reports that Lloyd Blankfein's shit tastes delicious too.

stocktivity's picture

Which explains why the banks are in panic mode.

Winston Churchill's picture

And the other $20tn in oil dervatives out there.

buzzsaw99's picture

those are only money-good when the banks are winning

VWAndy's picture

Rehypothocation solves that for a few days. They know they could be hanging from lamp posts very soon.

Blondika's picture

A friend said its time to set up guillotines on Wall Street and the Washington Mall.  I say lets go right to wood chippers.

Dirtt's picture

"how does booking a major loss ever help a bank?"

When the propbaility of a TOTAL LOSS is too high. Buyers at pennies on the dollar EXPECT liquidation which is volatile and TIME CONSUMING. SELLERS can't stomach the time decay and the cost/logistics of off-loading liquidated assets.

When you are on your death bed, buying days or weeks or months is the only game plan. If the banks are insolvent then keeping the company alive long enough to loot the quality assets for themselves is modus operandi.

Bank_sters's picture

Oil at the wellhead is 16.50 in the Bakken.   The game is over, I see it everyday in numerous ways- layoffs, skeleton crews, crime, suicide, drugs, real estate, liquidations, etc...  We are entering a depression out here.

FreedomGuy's picture

About 20% of the office space in my city is leased by the oil industry according to a real estate agent I talked to. Yet, home prices are stratospheric at about 10-20% appreciation per annum. It is like a fever when it comes to pricing property.

Incomes are going down. Expenses, especially through government are going up. Eventually, there must be some reconciliation with financial and economic reality. The longer it take, the worse it will be, I fear.

BingoBoggins's picture

ever'body gonna have to go back home; the great unwashed from across the globe. What's left? Did Williston make out or is it over? I know some of the locals that are left will be glad either way.

Kirk2NCC1701's picture

$16.50 per barrel, which has 42 gallons?

Shit, you should be selling WATER at the store!  It sells for $1/gal, i.e. $42/bbl.

sun tzu's picture

Water is less than a penny a gallon from the tap

Kirk2NCC1701's picture

If we go a few years back, I recall Porter Stansbury interviewing and mocking some Peak Oil guy (Chris Martensen). He went on and on about Bakken and Fracking, and how it was gonna make everyone rich and energy independent of the ME.

Looks like both guys were wrong (Martensen and Stansbury). And both were ZH darlings. Just goes to show that you never know, when it comes to TPTB. Except in the long run, when we're all dead.

Moar porn charts, please, to prove to us that The End is just around the corner. Again.


Volkodav's picture

who exactly do you follow for better predictive opinion? (if any)


jadan's picture

So what kind of exposure does the BND have? I'd like to hear c ries of anguish from this vaunted "public bank"...

boattrash's picture

Wow, the result of interest-free, and bail-out $$. Nobody could see this coming. Just. Fucking. Wow. We need moar man-made bubbles.

sun tzu's picture

You mean Fed made bubbles

new game's picture

true dat...ha, popcorn, popcorn, peanuts, said the vendor at the busy new york, wall st intersection...

WillyGroper's picture

problem is, they've already been digested.

abyssinian's picture

All the banks are fine, Deutsche Bank's CEO said they are solid as a rock and buying their bonds back, JP Morgan CEO just bought tons of company stocks with his bonus and Tim Seymore Butt from CNBC said there is no recession, everything is great and people just making noises.  Everything is good! 

_ConanTheLibertarian_'s picture

"Deutsche Bank's CEO said they are solid as a rock"

Like the corpse has turned solid as a rock?

abyssinian's picture

I think he was smoking crack and came up with that line while looking at the crack rock and his bank's stock price dropped from $150 to $15. 

FreedomGuy's picture

That is always the standard line from the Cheerleader in Chief.

oldmanofthesee's picture

You know, I have begun to confuse Tim Seymour with Steve Liesman. No matter what happens, his voice becomes more stridently optimistic.