(Reuters) – Wells Fargo & Co (WFC.N) has revived its special group for bad energy loans in recent weeks as the bank braces for more pain from the sharp downturn in oil prices, people familiar with the matter told Reuters. Sitting inside the credit-resolution group, where Wells Fargo handles struggling borrowers, the team includes many bankers who previously worked with the same oil and gas producers in its investment bank. They work alongside bankruptcy specialists who have been reassigned to focus exclusively on energy to help Wells Fargo wade through the expected flood of restructurings.
“It’s a bloodbath,” said one person with knowledge of the bank’s oil and gas portfolio, who was not authorized to speak publicly.
Wells Fargo spokeswoman Michelle Palomino said Wells Fargo maintains a strong energy and power group within its corporate and investment bank. The bank is committed to helping borrowers in the energy industry during this challenging time, she added. Global energy markets are awash with crude oil because of a price war between Saudi Arabia and Russia that boosted supply while demand was cratering due to the global coronavirus outbreak. The U.S. benchmark oil price briefly traded negatively last week for the first time in history. The U.S. energy industry was already struggling with high debt levels and profitability problems before this maelstrom. Bankruptcies have begun, with an April 7 survey of producers by the Federal Reserve Bank of Kansas City forecasting 40% would be insolvent within a year if oil prices were $30 per barrel. That is nearly double the current value. [O/R] Banks have worried for months about their loans to U.S. oil and gas producers, which could not tap other avenues to raise money. Lenders have been trying to pare back exposure by, for instance, ascribing less value to the collateral behind reserve-based loans (RBLs), the energy industry’s main source of cash.
Wells Fargo and JPMorgan Chase & Co (JPM.N) are considered to be the two largest lenders to U.S. energy companies. Citigroup Inc (C.N) had the largest energy loan book of any U.S. bank at the end of 2019 because of its international business.
As of the end of March, Wells Fargo had $14.3 billion of oil and gas loans outstanding, according to filings. Nick Note: For the record Wells Far Goes your Money is a dead broke piece of shit! For the record the fracking industry is no more. That party is over over i tell you. US oil production of 10 million Barrels per day is over. The US will never again be oil energy independent again. That ship has sailed. US production will drop to UNDER 5 million barrels per day. And you will see prices for crude oil, gasoline and diesel fuel rise very quickly once they let my people go to shop! The Fed and Treasury will let all the small players go under. Its cheaper to bail out the oil price then throw good money after bad on loans bailouts that are now bail outs of the bail outs.. Its the excuse they need to let the frackers go under. Reality is because fracked well lose up to 90% of their production in the first year the numbers do not work unless you have $60 WTI Crude. Those days are over. Fracking crews have been let go. The subcontractors that provide water, mud and gravel delivery are out of business. Fracking equipment like high pressure pumps and slurry blenders are being sold for scrap…. This ship has sailed.