Banks and hedge funds losing big time by the dropping oil prices.

[dixiegrrrrl]

Karma is a bitch re: the continuing decrease in oil prices.

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy.
That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows.

http://www.zerohedge.com/news/2014-11-28/price-oil-exposes-true-state-economy


Meanwhile, KKR and the Carlyle Group are facing huge losses on just one of their oil producing ventures Samson Resources Corp
that they bought for for $7.2 billion in 2011, and now are seeking buyers.

The stakes are especially high for KKR, which saw a $45 billion bet on natural gas prices go sour when Texas power utility Energy Future Holdings filed for bankruptcy this year.

http://in.reuters.com/assets/print?aid=INKCN0IU0DR20141110

[louis-t]

1. Gee, I wonder who will end up paying for the losses?

Could it be.......US?

[Tierra_y_Libertad]

2. Will we need to bail them out? Poor dears.

[closeupready]

3. Only in America, kiddies - only in America - do taxpayers subsidize 1% profits.

In most of the intelligent world, bankers lose when they lose. Here in the US, bankers win when they win, and win when they lose. Nice work, if you can get it, as the Billie Holiday song went.

[dixiegrrrrl]

5. Actually, their plan is for us to bail them in.

A version of what the banks did to Greece a couple of years ago, which is to take depositor's money and give back shares of stock in the bank.
It hinges on the fact that depositors in a bank....savings and checking accounts- are seen as unsecured creditors by the banks.
A term to keep in mind in light of announcements by British and American financial honchos:

Bank of England Governor and chairman of the Financial Stability Board Mark Carney announced it in a way that most people misunderstood, by claiming No more bailouts: banks won’t be saved by taxpayers.

The new global rules will force creditors to bear banks’ losses, ensuring that taxpayers’ money should never be used again to bail out banks.

http://rt.com/business/204155-taxpayer-bank-bailouts-rules/

The United States announced the same plan sept. 2013, almost word for word, and again using the "No more bailouts" teaser:

U.S. taxpayers will never again bail out any financial institution, not even one deemed to be "too big" to be allowed to fail.

That's according to prepared remarks delivered by Mary John Miller, under-secretary of the U.S. Treasury at a financial conference organized by the Levy Economics Institute of Bard College in New York recently.

Instead of bailouts, Miller says, "Shareholders of failed companies will be wiped out. Creditors will absorb losses.

http://www.bankrate.com/financing/banking/no-more-bank-bailouts/

[Tierra_y_Libertad]

6. Oh, yes! I remember voting for that! Well.....maybe not.

[Thinkingabout]

4. For the new fellow in the game, oh well, for those who have been there for a few years guess they

Will have to return to their previous profits. It was good while it lasted. Now some will run out and buy on the low side and make a profit in the future.

[hughee99]

7. Do I not understand loans?

They loan $850 million to two gas companies and the price of gas drops, so those gas companies don't have to pay back the loan? The value of my house went down, so I get to pay less on my loan.

[dixiegrrrrl]

8. Banks loan $$$ and then sell the debt.

Here...from the article:
[..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

That means they turn the debt into bonds, which they cannot sell at face value now because the underlying debt has lost value.

It is what the banks did with mortgages. They turned the loans into bonds which they sold, the buyers of the bonds were to use the repayment of the loans as the interest they earned on the bonds they held.
If you lose your job and can't pay the mortgage, you are foreclosed on, the banks sell your house to try to get some money back,
assuming the house has any value in a changed economy.


If an oil well or oil venture suddenly loses the value of its market, it can't pay back the loans and the bank will be stuck with a well or oil field or whatever that it cannot sell.So, in effect, has to put a loss on its books, which affects the banks stock.
Bank stocks are going down because of all this.

[hughee99]

9. So it's quite possible that the loan itself is actually paid back in full, and the bank still

takes a loss because they speculated on the stability of the oil companies and lost (if the companies were more stable, the debt would sell for more, right)?

[dixiegrrrrl]

10. If the bank gambled, via derivatives, on the health of the oil company

then they have to pay any losing bet.
Derivatives are the thing that has really been out of control, because they really are bets, not actual money based on underlying real assets.

so, yeah, if the oil company pays back the loan, and the bank invested in a bet they would not
or invested in a bet that the company would do better than it did, they could "lose" the money they bet.

[NMDemDist2]

11. so we'll probably have another bailout to clear out the savings in gas prices eh?

o joy.

[NickB79]

12. If they lose too much, they'll stop drilling new fracking wells for the foreseeable future

In the short term, these banks lose money and stop financing new drilling operations. In the medium term, low oil prices will really neuter the oil industry's future exploration and drilling programs.

End result if oil prices stay low for a year or so: expect oil and natural gas prices to SKYROCKET in a couple years as existing frack wells play out (they have a very rapid depletion rate compared to conventional oil and gas wells).

Sucks for us consumers who want cheaper fuel and home heating, but good for the environment to slow climate change.

[safeinOhio]

13. I've been hoping the

Koch brothers will take a big hit

[dixiegrrrrl]

14. They will, they have a lot of oil related investments.

But they also have more money than God, so can cushion considerable losses.