Oil in the age of coronavirus: a U.S. shale bust like no other

BUSINESS NEWS
APRIL 15, 2020 / 1:06 AM / UPDATED 7 HOURS AGO

Oil in the age of coronavirus: a U.S. shale bust like no other

Jennifer Hiller, Liz Hampton
7 MIN READ

HOUSTON/DENVER (Reuters) – Texas oilman Mike Shellman has kept his MCA Petroleum Corp going for four decades, drilling wells through booms and busts and always selling his crude to U.S. oil refiners.

FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant/File Photo

But now the second-generation oilman has abandoned drilling any new wells this year and postponed some maintenance amid a sharp drop in global oil prices and brimming storage tanks. He is considering shutting most of his production down, for the first time ever.

Oil fields from Texas and New Mexico to Oklahoma and North Dakota are going quiet as drilling halts and tens of thousands of oil workers lose their livelihood. Fuel demand has plunged by as much as 30 million barrels per day (bpd) – or 30% – as efforts to fight the coronavirus pandemic have grounded aircraft, reduced vehicle usage and pushed economies worldwide toward recession.

“What scares me is not even being able to sell the product,” the grizzled oil hand said from his firm’s San Marcos, Texas, headquarters.

Refiners and other buyers are warning they may refuse his oil once contracts expire this month, he said. Or they may offer to buy at a price below his costs, so he is preparing to dip into retirement savings to pay employees, he said.

The governments of global oil producers and consumers are seeking to make unprecedented cuts to overall supply of some 19.5 million bpd. U.S. President Donald Trump heralded the deal to cut supply as one that would save hundreds of thousands of U.S. jobs.

But oil prices fell again this week, dropping as much as 10% on Tuesday, because even those cuts may fail to stem the glut. Prices remain far below production costs for many U.S. producers, including those in the U.S. shale fields – the scene of a revolution in the energy industry over the past decade that made the United States the world’s top producer.

 

Across the United States, up to 240,000 oil-related jobs will be lost this year, about a third of the onshore and offshore oilfield workforce, estimates consultancy Rystad Energy.

The U.S. oil boom died on March 6, the day Saudi Arabia and Russia ended a four-year pact that curbed output and gave shale a price umbrella. Shale firms have accrued hefty debt during the years of expansion, leaving them exposed to the price crash that followed.

In March, U.S. oil futures tumbled to $20 a barrel, a third of the January price and less than half what many require to cover production costs. The March drop led dozens of shale producers to cut spending and several retained debt advisors.

“As soon as the virus hit and oil prices dropped, they sent everybody home,” said Joel Rodriguez, chief administrator of La Salle County, home of Texas’s second-most productive oilfield.

Shale oil producers face well closures and “industry wide financial distress” even after the OPEC cuts, said Artem Abramov, head of shale at consultancy Rystad Energy. In some fields, he expects regional prices will hit single-digits per barrel, he said. (For a graphic, click here)

Spending on oil field services will fall 21% to $211 billion this year, the lowest since 2005, according to researcher Spears & Associates.

 

Unlike the 2014-2016 oil bust, lenders are not making more financing available to producers, said Raoul Nowitz, head of restructuring at SOLIC Capital Advisors. He predicts up to 60 oil producers will seek protection from creditors this year, and many will not emerge under new owners. Some banks are setting up operations to take over and run failed producers.

LAYOFFS AND SHUT-INS

OPEC’s cuts may not be deep enough for oil producer Texland Petroleum, which operates 1,200 wells in the Permian Basin, the top U.S. oilfield. U.S. refiner and pipeline operator Phillips 66 asked President Jim Wilkes to reduce his deliveries by 15%, and another buyer canceled his contract outright.

“We’ve never had a time when we couldn’t sell the oil we produce. And that’s going to happen this time,” said Wilkes.

Average daily U.S. oil production this year will fall 500,000 bpd, to 11.8 million bpd and sink another 700,000 bpd next year, the Energy Information Administration estimated. (For a graphic, click: here)

Production cuts are too late for workers like Jeremy Davis, a 36-year-old who in March lost his business development job at Advanced BioCatalytics, which makes chemicals for hydraulic fracturing.

“They won’t be fracking many wells for the rest of the year,” said Davis, who after 16 years in the oilfield would now consider work outside the oil business. “I can’t wait around for the industry to come back,” he said.

Wall Street investors had already pulled back on the shale sector over the past couple of years because of poor returns, leaving producers with limited options for refinancing, said industry executives and analysts.

“There is no more lifeline,” said Lance Loeffler, the finance chief at top U.S. fracking service provider Halliburton Co.

PayZone Directional Services, a Denver-based driller, threw in the towel last month.

We could have stayed open and run until the money was gone but sometimes you just have to know when to cash in your chips and leave the table,” said Beth Thibodeaux, chief executive officer.

TIME TO MOVE ON

So much unsold oil is sloshing around that some pipeline operators, fearful of having their lines clogged, are insisting that producers halt connecting new wells and prove they have buyers or storage outlets before oil from existing wells can be put into a line.

They have warned “by mid-May storage is full” and will refuse to take any more, said Scott Sheffield, CEO at Permian Basin producer Pioneer Natural Resources.

He and some other executives in Texas and Oklahoma want state regulators to mandate up to 20% output cuts, sparing only the smallest producers. In Texas, energy regulators on Tuesday heard Sheffield call for a state order to halt 1 million bpd from its shale fields to prevent sale at below production cost.

 

MCA Petroleum owner Shellman said he tells friends who lost their jobs that it is time to leave the oil business. “It’s not ever going to be like it was.”

Shellman, who as a youngster got his first taste of the oil business accompanying his parents to their own oil wells, has promised to pay his employees from savings even if they have to shut in wells. But the pain goes well beyond Shellman’s wallet.

“From an emotional standpoint, this is killing me,” he said.

Reporting by Jennifer Hiller in Houston, Liz Hampton in Denver; editing by Gary McWilliams and Edward Tobin

Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets By Christine Idzelis and Craig Torres – Dec 11, 2014, 10:59:52 AM

The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.

Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.

“Anything that becomes a mania — it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”

The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis.

Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44 percent to $60.46 a barrel since reaching this year’s peak of $107.26 in June.

Yields Surge

Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7 percent in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services Inc. (CJES ▼ -3.13% 12.07), postponed financings this month as sentiment soured.

“It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.

Companies rated Ba1 and lower by Moody’s and BB+ and below by Standard & Poor’s are considered speculative grade.

Stimulus Effect

The Fed’s three rounds of bond buying were a gift to small companies in the capital-intensive energy industry that needed cheap borrowing costs to thrive, according to Chris Lafakis, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Quantitative easing “has been one of the keys to the fast, breakneck pace of the growth in U.S. oil production which requires abundant capital,” Lafakis said.

One of those to take advantage was Energy XXI Ltd. (EXXI ▼ -1.39% 2.84), an oil and gas explorer, which has raised more than $2 billion in the bond market in the past four years.

The Houston-based company’s $750 million of 9.25 percent notes, issued in December 2010, have tumbled to 64 cents on the dollar from 106.3 cents in September, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They yield 27.7 percent.

Energy XXI got its lenders in August to waive a potential violation of its credit agreement because its debt had risen relative to its earnings, according to a regulatory filing. In September, lenders agreed to increase the amount of leverage allowed.

Bubble Risk

“We think the sell-off has been a little over done,” said Greg Smith, a vice president in Energy XXI’s investor relations department. “People are trading us as though we’re distressed.”

The company has “plenty of liquidity,” Smith said. “Come January we’ll be free cash flow positive,” which is “a rarity in this business,” he said.

The debt rout is one of the latest examples of a boom and bust in U.S. markets as unprecedented Fed stimulus fuels a hunt for yield. The fallout has been limited so far, yet the longer the Fed holds its benchmark lending rate near zero, the greater the risk of more consequential bubbles, according to former Fed governor Jeremy Stein.

“To the extent that highly accommodative monetary policy courts risks to the economy further down the road, there is more of a live trade-off than there was at 8 percent unemployment” said Stein, now a Harvard University professor.

Joblessness of 5.8 percent in November was about half a percentage point away from the Fed’s estimate of full employment, or the lowest level of labor market slack the economy can sustain before companies bid up wages.

Job Creation

Employment in support services for oil and gas operations has surged 70 percent since the U.S. expansion began in June 2009, while oil and gas extraction payrolls have climbed 34 percent.

“There are distortions in multiple markets,” said Lawrence Goodman, president of the Center for Financial Stability, a monetary research group in New York. “It is like a Whac-A-Mole game: You don’t know where it is going to pop up next.”

Fed Chair Janet Yellen said in a July 2 speech in Washington that she saw “pockets of increased risk-taking,” including in the corporate debt markets.

Midstates Petroleum Co. (MPO ▼ -11.56% 1.30) is spending about $1.15 drilling for every dollar earned selling oil and gas. Outspending cash flow is the norm for many companies in the U.S. shale boom.

Changing Environment

The Houston-based company’s $700 million of 9.25 percent notes due in June 2021 have plummeted to 53.5 cents from 108 cents at the beginning of September, according to Trace. The debt is rated Caa1 by Moody’s and B- by S&P.

Representatives of Midstates didn’t respond to phone calls and e-mails seeking comment.

Some borrowers are under pressure just a few months after selling new debt. Sanchez Energy Corp.’s $1.15 billion of 6.125 percent notes maturing in January 2023, issued this year, have tumbled to 77 cents from 101 cents in September, according to Trace. Proceeds from the bonds were partly used to fund a purchase of Eagle Ford shale assets from Royal Dutch Shell Plc. (RDSA ▲ 0.78% 25.97)

“The company has planned for and is poised to rapidly adapt to a changing commodity price environment,” Tony Sanchez, III, chief executive officer of Sanchez Energy, said in a statement yesterday.

The Houston-based company expects to fully fund its 2015 capital program from operating cash flow and cash on hand without drawing on its revolving credit line, the statement said.

Magnum Hunter

Sanchez Energy has never had positive free cash flow. Michael Long, chief financial officer, didn’t return a call seeking comment.

“Oil companies that have high funding costs in the Eagle Ford and the Bakken shale plays are the ones that are most exposed right now due to lower crude prices,” Gary C. Evans, chief executive officer of Magnum Hunter Resources (MHR ▼ -4.16% 3.46) Corp., said in a phone interview.

Magnum Hunter’s $600 million of 9.75 percent debt due in 2020 has tumbled to 84.5 cents from 109 cents in September, Trace data show. The notes are rated CCC by S&P and yield 13.9 percent.

Evans said Houston-based Magnum Hunter sold almost all of its oil properties over the last year and a half and is now predominantly a gas company.

Default Risk

“We’ve insulated ourselves,” Evans said. For other energy borrowers at risk, “the liquidity squeeze” will probably occur in March or April when banks re-calculate have much they may borrow under their credit lines based on the value of their oil reserves.

Deutsche Bank analysts predicted in a Dec. 8 report that about a third of companies rated B or CCC may be unable to meet their obligations should oil prices drop to $55 a barrel.

“If you keep oil prices low enough for long enough, there is a pretty good case that some of the weakest issuers in the high-yield space will run into cash-flow issues,” Oleg Melentyev, a New York-based credit strategist at Deutsche Bank, said in a telephone interview.

For Related News and Information: Junk Fervor Cools as Oil Rout Upends Energy Debt: Credit Markets Junk Backing Shale Boom Faces $11.6 Billion Loss: Credit Markets Shale Boom’s Allure to Wall Street Tested by Drop in Oil Prices Oil Slump Heaps Bond Losses in $50 Billion Glut: Credit Markets Drillers Piling Up More Debt Than Oil Hunting Fortunes in Shale

To contact the reporters on this story: Christine Idzelis in New York at cidzelis@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage, Faris Khan

U.S. Regulator Flags Concerns About Growing Auto-Loan Market

 

WASHINGTON — A U.S. financial regulator is growing worried about increasingly risky practices in the auto-lending market, an area of growth for banks.

The Office of the Comptroller of the Currency, in a report released Wednesday, singled out concerns in the “indirect” auto lending market, in which banks buy up loans originated by car dealers. The regulator said it’s concerned about signs of loosening lending standards, including more loans to borrowers with weaker credit.

“These early signs of easing terms and increasing risk are noteworthy,” the banking regulator said.

Associated Press

Banks saw auto lending grow nearly 13% compared with a year earlier in the fourth quarter of last year and the OCC said it’s worried about growing losses in the industry. Average losses per vehicle have “risen substantially in the past two years.”

The average loss on a defaulted auto loan rose to more than $8,500 in the first quarter of this year, compared with $7,400 a year earlier, according to a May report by Experian PLC.EXPGY +0.18%

Auto lending has been a big area of growth for banks as demand for credit cards and other consumer loans has remained tepid.

U.S. Bancorp USB +0.14%, the largest U.S. regional bank by assets, has been “moving more aggressively in auto loans,” Chief Executive Richard Davis said during an investor conference earlier this month.

Wells Fargo WFC +0.21% & Co., the fourth-largest U.S. bank by assets, has expanded its auto-lending business significantly. The San Francisco-based bank’s auto-loan portfolio increased 11.3% in the first quarter to $52.6 billion.

Wells Fargo has improved its credit quality in the auto-lending business in recent years, Thomas Wolfe, executive vice president of consumer credit solutions for the bank, said during an investor presentation in May. “We have moved upstream slightly,” he said, adding that the bank does “a lot more prime financing than we do non-prime or subprime financing.”

Total outstanding U.S. auto loans have risen to $875 billion in the first quarter of 2014, the highest level in more than a decade, according to Federal Reserve Bank of New York data.

Earlier this month, General Motors Financial Co. sold off its largest bond backed by subprime auto loans since 2007, garnering the lowest yields in more than a year compared with an interest rate benchmark.

Bond investors have gravitated to auto loans because delinquencies are low and the bond deals weathered the financial crisis with few rating downgrades, a stark difference from bonds backed by home mortgages.

The auto-lending market faces regulatory inquiries as well, The Justice Department and Consumer Financial Protection Bureau have been investigating whether lenders’ practices have led to discrimination against women and minorities.

 

Moody’s: Risky Borrowers Default at Higher Rates

 

Senior Editor WSJ

Lenders beware: junk-rated companies that borrow with few strings attached are defaulting at higher-than-average rates.

Analysts at Moody’s Investors Service MCO -0.22% studied 423 U.S. companies that borrowed money on easy terms between 2005 through the first quarter of 2014. By tracking their default rates over three-year intervals, the analysts discovered that the average default rate totaled 18.8%, compared with a 13.4% rate for all high-yield loan borrowers.

More companies are getting access to those so-called covenant-lite loans. More than half of loans in the $750 billion junk loan market lacked financial covenants, according to a recent analysis by S&P Capital IQ.

Recently, pest-control and cleaning company Servicemaster Global Holdings Inc., borrowed $1.83 billion in a covenant-lite loan. Other recent borrowers included designer fashion house Kate Spade & Co. and nut specialist Diamond Foods Inc.DMND +0.29%

Covenants are triggers that could force borrowers to shore up their financial health. Those triggers usually involve periodic tests of overall debt levels and cash flow to cover scheduled interest payments.

Moody’s study also found that the covenant-lite loans are becoming a larger part of companies’ capital structures.

“It’s a worrisome trend,” said Moody’s analyst Julia Chursin. She noted that a smaller debt cushion means that lenders will take bigger losses in a default, because there are fewer lenders behind them in the capital structure to absorb losses.

Moody’s analysts found that covenant-lite lenders recovered less: 79 cents on the dollar versus 82 cents for all lenders in their database.

The growth in riskier loans is starting to concern regulators. The Office of the Comptroller of the Currency released a report on Wednesday, which cited the growth of risky high-yielding loans with looser underwriting standards as an area of “supervisory concern.”

 

AUTO LENDING STANDARDS PLUNGE: NEW CAR LOANS AVERAGE 110% LTV; USED CAR LOANS 133% LTV WITH 55% SUBPRIME! REPOSSESSIONS UP SHARPLY

Auto Lending Standards Plunge: New Car Loans Average 110% LTV; Used Car Loans 133% LTV with 55% Subprime! Repossessions Up Sharply

U.S. car sales are up. It’s easy to explain why: car buyers borrow more as standards loosen

 The average loan on a new car climbed to $26,719 in the third quarter, up by $756 from a year earlier, and the most in at least five years, according to data collected by Experian Plc.

Despite borrowing so much more, average monthly payments on new car loans rose only $6 to $458. That is because banks and finance companies were willing to lend at lower rates and grant borrowers more time to repay.

Lenders made 26.04 percent of their loans on new cars to buyers with subprime credit scores, up from 24.84 percent a year earlier, said Experian, which collects car title and financing information to compile its reports. For loans on used cars, the portion to subprime borrowers rose to 54.95 percent from 54.43 percent.

As the lenders made bigger loans, they also extended credit further beyond the value of the vehicles. The average loan-to-value on new cars rose to 110.6 percent, up by 1.17 percentage points. On used cars it rose to 133.2 percent, up by 2.18 percentage points.

Auto lenders often provide loans that exceed the value of cars they are financing because borrowers want cash to pay sales taxes and fees.

Extra-long loans are becoming more common. Some 19 percent of new car loans were made for more than six years, up from 16.4 percent a year earlier.

The percentage of loans 30-days delinquent was down in the third quarter to 2.58 percent from 2.67 percent a year earlier, Experian said.

However, the average loss on loans gone bad jumped to $7,770 in the third quarter from $7,026 a year earlier and repossessions increased sharply, particularly for subprime borrowers.

Used Car Loans 133% LTV with 55% Subprime?!

Excuse me for asking, but didn’t we try “lower-and-lower lending standards” once before? How did it work out? Can anyone tell me why it will be different this time?

Repossessions are up sharply, but who cares about that? No doubt the loans are sliced, diced, tranched, and securitized to make them appear as AAA. Pension funds are probably dumping gold to load up on them.

Auto lending, like housing in 2006, appears to be a no-lose proposition.

After all, the Fed is in complete control. Isn’t it?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Read more at http://globaleconomicanalysis.blogspot.com/2013/12/auto-lending-standards-plunge-new-car.html#TvJLTqptV22QdqzA.99

Bloomberg: Americans Due to Replace Oldest  Goods Since JFK; Jewelry? FDR

By Michelle Jamrisko – Dec 3, 2013 8:37 AM ET
Victor J. Blue/Bloomberg
Customers try out mattresses in the showroom of an Ikea store in the Brooklyn borough of New York City.

Americans have been holding on to their wobbly washing machines and sagging sofas even longer than their grandparents did 50 years ago, setting the stage for a rebound in consumer spending as old household goods wear out.

The average age of consumer durable goods — long-lasting items such as furniture, appliances and computers — is the highest since 1962, according to data from the Bureau of Economic Analysis dating to 1925. Among things Americans are keeping for the longest time: jewelry and wristwatches and home and garden tools like lawnmowers.

Replacement purchases, overdue after the worst recession since the Great Depression, would boost the consumer spending that accounts for 70 percent of the economy. Automobilesales are headed for their best year since 2007, showing Americans have the financial security to buy more expensive items, and economists say that means household-goods sales will pick up.

Such purchases are “postpone-able for only so long,” said John Silvia, chief economist for Wells Fargo Securities LLC in Charlotte, North Carolina, the biggest U.S. mortgage lender. Increases in home values, along with gains in consumer confidence, incomes and employment from recessionary lows, make “people sense it’s worth putting money back into that house” with purchases such as appliances, he said.

Cars and luggage were the only two of 17 categories the BEA tracks that saw a decrease in average age in 2012, according to the data released Nov. 14. The average age of jewelry was 5.3 years, the oldest since 1942, while that of home and garden tools was 5.1 years, the highest since 1961. The categories include products that typically last at least three years.

Replacement Pattern

The data show a replacement cycle that started in the post-World War II era as people moved to the suburbs and made purchases to set up their households, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.

The average age of goods rises during an economic downturn, and “towards the middle of an expansion, you tend to see these numbers start to come down, and that means people are buying more stuff,” said Dutta, who projects durables purchases will pick up next year.

Appliance maker Whirlpool Corp. of Benton Harbor, Michigan, expects bigger gains in 2014 from people replacing aging goods, Bob Bergeth, the company’s general manager of national contract builder sales, said in a telephone interview. “There is quite a bit of pent-up demand,” he said.

Broken Burners

“People who have lived with one burner or two burners on their stove that have been working now feel more secure in their job outlook and employment and even wage increases,” Bergeth said. “They’re increasingly coming back into the market and replacing that range.”

Manufacturing in the U.S. accelerated in November at the fastest pace in more than two years as companies boosted production to keep up with growing orders, figures from the Institute for Supply Management showed yesterday.

Steven Orlikowski, a software developer in Houston, said he’s ready to replace the five-year-old computer he’s been getting along with since he “rediscovered thrift” after losing his job in 2009.

The 36-year-old, who has since found a new job, said he’s shopping this week to take advantage of holiday discounting.

“I’ve got to replace it, because that one is pretty much dead in the water,” he said. “I’m in a good position right now” to make more expensive purchases.

Lifting Growth

A jump in household durable-goods demand would help lift U.S. growth that is little changed from last year’s 2 percent average annualized rate. Gross domestic product expanded at a 2.1 percent rate so far in 2013 and 2.3 percent since the recession ended in June 2009.

Consumer spending in the three months ended September rose at the slowest pace since 2011. That reflected the weakest gain in four years in expenditures for services such as haircuts or consulting and doesn’t mean Americans aren’t willing to make lasting purchases, Dutta said.

Rising property values and sustained home sales in the face of climbing mortgage rates give businesses such as Lowe’s Cos. confidence that consumers have only started to swap out old household goods.

There is “an emerging willingness among consumers to finally replace items that are worn or outdated or to make significant enhancements to their homes,” Gregory Bridgeford, chief customer officer at the second-largest U.S. home-improvement retailer, said on a Nov. 20 earnings call.

Slow Build

Even so, “it’s a slow build,” he said.

One reason: Consumers are reluctant to take on more debt after the recession forced them to clean up their finances.

Household debt as a share of income was 92.2 percent last quarter, a decade low and down from its peak of 114 percent in 2009. The debt-service ratio, which measures how much income is devoted to paying off obligations, has also steadied after dropping last year to a record low.

Thirty-six percent of consumers listed keeping current on bills as their top financial priority, according to a Bankrate.com survey conducted Nov. 7-10. Twenty percent prioritized paying down debt and 18 percent said they were most concerned with saving money.

Revolving debt, which includes credit-card spending, shrank by $2.1 billion in September, the fourth straight month of declines and the longest such stretch in almost three years, according to Federal Reserve data. Non-revolving credit, which includes financing for college tuition and autos, increased $15.8 billion.

Casual Spending

Those figures show consumers are less likely to run up credit-card balances with casual expenditures such as movie tickets or restaurant meals, Silvia said. That doesn’t mean they’ll continue to put off major purchases, he said.

“A number of people will have to come back and say OK, I’ve postponed this now for three to five years, we really need to get it done,” Silvia said.

If so, they may find financing more readily available as banks ease standards for consumer loans. Among 70 banks polled for the Federal Reserve’s quarterly senior loan officers’ surveyin October, all said credit standards for consumer loan approvals were either unchanged or had eased somewhat. All 65 banks who responded specifically about approving auto loans also said the standards had stayed the same or loosened.

Cars and light trucks sold at a 15.2 million annualized rate in October, the 12th consecutive month above the 15-million mark for the longest streak since February 2008. The rise has supported companies such as Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. retailer of cars and trucks.

“The auto-credit environment remains strong,” Chief Executive Officer Michael J. Jackson said on an Oct. 24 earnings call. Further sales gains are “dependent upon the fundamental strength of the economic recovery in the U.S. and whether the employment picture has significantly improved from what it is today.”

To contact the reporter on this story: Michelle Jamrisko in Washington atmjamrisko@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

AUTO THERAPY Americans are bingeing less on houses and more on cars

AUTO THERAPY

Americans are bingeing less on houses and more on cars

By John McDuling @jmcduling 7 hours ago

Easy street. Reuters/Rebecca Cook

November sales figures for Detroit’s “big three” automakers are out, and like last month, they’re looking good:

It’s a good sign for the US economy, given that automakers are both a huge employer and a major customer for other industries. It’s also further vindication for the Obama Administration’s 2009 bailout of the sector.

But as we’ve previously discussed, there’s good reason to be at least slightly concerned: The boom in auto sales coincides with a massive increase in cheap auto loans, many of which are subprime. These loans are packaged together and sold on to increasingly yield-hungry investors. Issuance of securities backed by subprime auto loans have more than doubled since 2010 to $17 billion this year, but remain below their 2005 peak, Businessweek reports, citing Deutsche Bank.

What’s more, a recent survey of auto dealers by UBS found that lending standards for financing auto purchases have been easing since mid-year. The chart below shows the percentage of auto dealers who think lending standards are getting tighter versus more lenient:

​UBS

Neither Wall Street or Main Street seems all that concerned. UBS is forecasting arecord year for GM in 2014, with its North American profit to increase by some $2 billion, up 27% from this year. Auto dealers, according to the UBS survey, expect industrywide car sales to increase by 2.6% in 2014.

Of course, surging auto debt comes at a time when falling credit card debt has been falling sharply. Slate’s Matt Yglesias has argued that credit card lending standards have tightened far more than auto lending standards have since the financial crisis. He puts this down to the greater strength of the car lobby relative to the banking lobby. The UBS survey supports this notion. Most dealers say warnings from the Consumer Financial Protection Bureau have had no impact on lending practices this year, as shown in the chart below.

​UBS

The pressing question these numbers raise is whether consumers are shifting their spending and debts from credit cards to auto loans. The New York Fed’s latesthousehold debt and credit report shows that while housing debt has fallen since 2008, non-housing debt, which includes credit cards and car loans, is actually back at pre-crisis highs.  If consumers are piling up on auto loans, the economy may have moved on to its next bubble.

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Coal at Risk as Global Lenders Drop Financing

Coal at Risk as Global Lenders Drop Financing on Climate

By Mark Drajem – Aug 6, 2013 10:56 AM ET

Tomohiro Ohsumi/Bloomberg

An employee stands in front of stockpiles of coal inside a storage yard at the Joban Joint Power Co. coal-fired power station in Iwaki City, Japan.

The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity.

Obama Unveils Climate Plan Focused on Power Plants 48:10

June 25 (Bloomberg) — U.S. President Barack Obama speaks about his plan to address climate change. Obama, speaking at Georgetown University in Washington, proposed a sweeping plan that sets goals to reduce carbon emissions and bolster renewable energy while also preparing the country for the impacts of a warming planet. (Source: Bloomberg)

Enlarge image Coal at Risk as Global Lenders Drop Financing on Climate

A coal-fired power station stands in the distance behind a disused coal dredger in the town center in Morwell, Australia, on July 25, 2013. Photographer: Carla

Gottgens/Bloomberg

First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years.

“Drawing back means there is less capital for these projects,” Richard Caperton, managing director for energy at the Center for American Progress in Washington, said in an interview. “I don’t expect private capital to move in and fill the void, either, because there is a real risk that these plants will be turned off early.”

Demand for coal in developing nations has taken on increasing importance as the combination of stricter environmental regulations in the U.S., increasing deployment of subsidized renewable resources and a drop in the price of natural gas have pushed utilities to shutter coal plants.

Among the three government-backed lenders, the World Bank has provided $6.26 billion for coal-related projects over the past five years, according to data from Oil Change International. The Ex-Im bank provided more than $1.4 billion to two coal projects, one in South Africa and another in India.

Curb Investments

While the pull back is unlikely to have a direct impact on China, the world’s top user of coal, it could curb construction of new plants in countries such as South Africa and Vietnam and dampen new export markets for coal mined in the U.S., Indonesia or Australia by companies such as Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR)

“We’ve never seen a cascading sentiment that coal is not acceptable like we’re seeing happen right now,” Justin Guay, the head of the Sierra Club’s international climate program, said in an interview. “It’s a snowball running downhill.”

Environmental groups such as the Sierra Club are fighting coal plants and coal mines, because coal releases the most carbon dioxide per unit of energy of any major fuel source. Scientists say carbon emissions are to blame for warming Earth’s temperatures, increasing the number and severity of storms and melting polar ice.

Supporters of the fuel source say it’s a low-cost way for poor nations to provide light, refrigeration and air conditioning to their people.

‘Our Backs’

The move by lenders against coal turns “our backs on millions without electricity and chooses not to help them achieve a better standard of living,” said Nancy Gravatt, a spokeswoman for the National Mining Association in Washington, which represents producers such as Alpha and

Arch Coal Inc. (ACI)

Analysts are divided about long-term global coal demand.

The U.S. Energy Information Administration, in a July 25 report, projected world coal use would increase by a third — to more than 200 quadrillion British thermal units a year — by 2040 as developing nations boost its use.

The cut-back in the financing isn’t causing a reassessment of that outlook, said Greg Adams, the team leader for coal at EIA. “The capacity that is going to be affected is going to be limited,” he said.

Gregory Boyce, chief executive officer of Peabody, the largest U.S. coal producer, noted that German and Japanese coal use is climbing as they cut nuclear-power generation.

China, India

“China and India imports have risen year-to-date and are on a pace to increase 15 percent this year to new record levels as the trends to urbanize, industrialize and electrify continue,” Boyce said in a conference call with analysts on July 23.

Goldman Sachs Group Inc. offers a less buoyant outlook.

“We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded,” Christian Lelong, an analyst at Goldman Sachs in Australia, said in a report on July 24. “Most thermal coal growth projects will struggle to earn a positive return.”

Coal is now used to generate 40 percent of the world’s electricity, and its use has grown more than 50 percent in the past decade, according to EIA. The U.S. is the world’s second-largest producer of coal, after China, followed by India, Australia and Indonesia. China is the world’s top importer of coal as well, followed by Japan, according to the World Coal Association.

1,200 Plants

According to an analysis by the World Resources Institute in Washington, 1,200 coal-fired plants are proposed globally, with more than three-quarters of those planned for India and China alone. If all are built, which WRI says is unlikely, that would add more than 80 percent to existing capacity.

China can finance its projects on its own, and India has only relied on export financing in a few cases. As a result, the recent changes are likely to impact other nations in Africa and Asia, which don’t have the same access to credit. Each group said in some instances it would still finance coal, and activists are worried about those exceptions.

“The implementation of all three of those initiatives is yet to be fleshed out,” Doug Norlen, the policy director of Pacific Environment, which is fighting these kinds of fossil-fuel projects, said in an interview. “These will be huge steps, if properly implemented.”

That implementation is still an open question.

Project Rejected

For example, as part of Obama’s climate action plan released on June 25, the U.S. pledged to end support of foreign coal-fired power plants, unless they are in the poorest nations or have expensive carbon-capture technology. The U.S. Export-Import Bank is only now developing the procedures to implement that policy, and its board will consider those changes in the coming weeks. The lender shot down a bid to finance a coal plant in Vietnam, its only pending application for coal, just three weeks after Obama’s announcement.

Norlen’s group and other environmentalists filed a lawsuit against the Export-Import Bank last week to try to block its financing of coal exports. That support is separate from the policy change Obama announced.

The European Investment Bank set an emission performance standard that would prevent lending to new coal-fired plants unless they also burn biomass. The European Bank for Reconstruction and Development is also under pressure to limit support.

Japan Support

Even after the World Bank said it would help nations transition from coal to natural gas or renewables, it’s still considering support for a coal project in Kosovo.

There’s also the possibility that other lenders, especially export-credit agencies from Japan or China, could step in and replace the World Bank, U.S. and Europe. Japan’s Bank for International Cooperation, its export financing body, has provided more than $10 billion in financing for overseas coal projects, more than any other individual nation, according to the WRI report.

And now China, which wants to export coal-plant technology, may ramp up support as well, said Ailun Yang, the author of the WRI report.

“It is a real concern” that “some of the funding gap for coal-fired plants would simply be filled by the Chinese banks,” she said.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

BOE Signals UK Banks Need To Raise Capital

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