2016 Oil Credit Crunch (2008 part deux)

Looks like US banks made $2 trillion in loans to US oil and shale companies. get ready for the defaults, people, we’ll hear about the bailouts soon enough.


Thanks for sharing. My two cents:

There is difference between a bad loan and a bad company. But this is a common mistake for people who don’t understand lending that well.

Oil won’t sink the industry. Contagion from oil may sink regions of the industry. Almost all the big banks have sizeable reserves accrued for their energy portfolios – so far this earning season, the range seems to be between 5-7%. And it barely even impacts their EPS due to the low exposure.

Recency bias seems to really drive the way people think about risks. This author sounds like they don’t have the slightest clue how underwriting/banking works. High yield, on the other hand, may be where you see the impact

We’ll see. I’ve opened a lot of shorts in the meantime, but admitedly I’m net long. So far in 2016, my shorts are obviously doing much better. And despite a lacking knowledge of how underwriting works, I understand this much - if those oil companies default in large waves on $2 trillion, then that’s not chump change.

The problem is that it could still be chump change. Default doesn’t mean losses. That said, I think the market is thinking like you. It only takes a moment for the sentiment shift, but will take Quarters for the reality to emerge. I think those banks are more declining due to the prospect of rising credit costs to a normal level with rates still low, further reducing the roes