Panic Below The Surface: “Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival”

One week ago, when we commented on the latest weekly update from Credit Suisse’s very well hooked-in energy analyst James Wicklund, one particular phrase stuck out when looking at the upcoming contraction of Oil and Gas liquidity: “while your borrowing base might be upheld, there will be minimum liquidity requirements before capital can be accessed. It is hitting the OFS sector as well. As one banker put it, “we are looking to save ourselves now.”

In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn’t rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS “It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months.“

Which is bad news: as we reported late last week, the restaurant “recovery” is now over, so as these formerly very well-paid and highly skilled workers scramble to find a job, any job, they’ll find that even the “backup plan” has failed, with not even the local McDonald’s suddenly hiring.

From the latest things we’ve learned this week

One Last Cigarette? Some comments that stood out to us during earnings include, “We are in a period of unprecedented uncertainty.” “We are managing our business week-by-week, crew-by-crew and unit-by-unit.” “We are in a generational downturn.” “We are very bearish for the first half of the year.” “In the second half [of 2016], every tank and swimming pool in the world is going to fill…”

On the Precipice. Oilfield Service companies have reduced headcount by as much as 35% in some cases and the reductions continue as oil prices not only continue their decline but the argument for a strong price comeback gets more and more difficult to rationalize. It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months. People who had been saying that this is the worst downturn since the 1980’s are now thinking that this is a return to the 1980’s.There are reports of banks selling loans at cents on the dollar to try and ensure their own survival and bankruptcy courts and workout specialists are seeing their best market in decades.