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2116, 24 Jan 16

Dallas Fed “Effectively Suspended Mark-to-Market on Energy Debts”

Whoa. If true, it looks like the Fed is repeating the actions it took before the collapse of the mortgage industry.

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.


2116, 24 January 2016

1 Comment

  1. dad29

    Happened to see a local banker after that news broke. It’s not quite ‘suspending mark-to-market,’ it’s more like ‘partial write-down based on averages.’

    IOW yes, the Feds have relaxed the rules, but no, they haven’t abandoned them.

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