Forty Percent of Goldman’s Oil and Gas Loans are Junk

If we were to grade investment banks and put them on a barbell, Goldman would be on one end, representing the best and smartest with just $10.6 billion in overall oil and gas exposure, and then Citi on the other, dumb as shit gorillas with $58 billion in a toxic wasteland loan portfolio of oil and gas nonsense.

The figure, which counts both loans made and future promises to lend, accounted for $4.2 billion of a total $10.6 billion as of the end of December, the New York-based bank said Monday in its annual regulatory filing. Goldman Sachs has $1.5 billion in loans to energy companies rated below investment grade and $2.7 billion in unfunded commitments.

The total exposure jumps $1.9 billion counting derivatives and other receivables, which were “primarily” to investment-grade firms, Goldman Sachs said.
Concerns about banks’ energy loans have helped spur share declines for lenders after the price of oil fell 42 percent in the past 12 months through Friday. The Standard & Poor’s 500 Financials Index slumped 13 percent in the same period.

Goldman Sachs’s total is below some of its biggest competitors. Citigroup Inc.’s funded and unfunded commitments amounted to $58 billion, analysts at Susquehanna Financial Group LLP wrote in a note last week. Most of Wells Fargo & Co.’s $17 billion in outstanding energy loans is for companies that aren’t investment grade, Chief Financial Officer John Shrewsberry said last month.

I think it’s fair to say that 40% of oil and gas loan portfolios can and will turn bad for investment banks. By my last count, there was $356 billion in unmanageable oil and gas debt, soon to be restructured. Behind that was another $351 billion that is likely to fall by the same sword, unless we see a measurable rally in crude and other basic resources. In all, a total of around $700 billion in debt might need to be restructured. This, of course, doesn’t mean total loss. There are assets associated with these loans, collateral through land and equipment. But the losses will be significant and we’ve yet to endure their sting through the reporting of them by any of our banks.