JohnQPublic
16th January 2016, 11:37 AM
TRYING TO AVOID 2008 TAKE 2?
Exclusive: Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears (http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale)
...earlier this week, before the start of bank earnings season, before BOK's startling announcement, we reported (https://twitter.com/zerohedge/status/686649574887407620)we had heard of a rumor that Dallas Fed members had met with banks in Houston and explicitly "told them not to force energy bankruptcies" and to demand asset sales instead. We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.
This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated "under the table" that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.
In other words, the Fed has advised banks to cover up major energy-related losses.
Why the reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.
In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed's involvement that is pressuring banks to not disclose the true state of their energy "books.
Naturally, once this becomes public, the Fed risks a stampeded out of energy exposure because for the Fed to intervene in such a dramatic fashion it suggests that the US energy industry is on the verge of a subprime-like blow up.
Putting this all together, a source who wishes to remain anonymous, adds that equity has been levitating only because energy funds are confident the syndicates will remain in size to meet net working capital deficits. Which is a big gamble considering that as we firsst showed ten days ago (http://www.zerohedge.com/news/2016-01-05/next-default-wave-banks-have-quietly-shrunk-these-25-energy-companies-credit-facilit), over the past several weeks banks have already quietly reduced their credit facility exposure to at least 25 deeply distressed (and soon to be even deeper distressed) names.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01/yanked%20revolvers_0.jpg (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01/yanked%20revolvers.jpg)
Exclusive: Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears (http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale)
...earlier this week, before the start of bank earnings season, before BOK's startling announcement, we reported (https://twitter.com/zerohedge/status/686649574887407620)we had heard of a rumor that Dallas Fed members had met with banks in Houston and explicitly "told them not to force energy bankruptcies" and to demand asset sales instead. We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.
This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated "under the table" that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.
In other words, the Fed has advised banks to cover up major energy-related losses.
Why the reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.
In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed's involvement that is pressuring banks to not disclose the true state of their energy "books.
Naturally, once this becomes public, the Fed risks a stampeded out of energy exposure because for the Fed to intervene in such a dramatic fashion it suggests that the US energy industry is on the verge of a subprime-like blow up.
Putting this all together, a source who wishes to remain anonymous, adds that equity has been levitating only because energy funds are confident the syndicates will remain in size to meet net working capital deficits. Which is a big gamble considering that as we firsst showed ten days ago (http://www.zerohedge.com/news/2016-01-05/next-default-wave-banks-have-quietly-shrunk-these-25-energy-companies-credit-facilit), over the past several weeks banks have already quietly reduced their credit facility exposure to at least 25 deeply distressed (and soon to be even deeper distressed) names.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01/yanked%20revolvers_0.jpg (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01/yanked%20revolvers.jpg)