Friday, October 9, 2015

This Week in Bank Failures

Deutsche Bank could suspend its dividend as it looks at €6 billion in losses and charges related to its global restructuring, which is still in its very early stages.

The stock of U.K.-Swiss commodities trader and miner Glencore has fallen by half since the start of the year. Traders and analysts worry about the company’s liquidity facing falling prices for metals, ores, oil, and other commodities. Bank of America warns that banks could have around $50 billion of exposure to Glencore mostly in the form of lines of credit, money that could be at risk if Glencore loses liquidity. Another analyst thinks that no U.S. bank has as much as $1 billion at stake in Glencore, focusing on Glencore’s largest credit facility with an estimated balance of $15 billion. This line of credit is said to have 34 lead banks. We might find out more about specific banks’ exposure in the footnotes to this month’s financial statements.

Layoffs are on the way at Standard Chartered Bank. The bank has told its staff it is preparing to cut 1,000 jobs. Besides its own operational problems, Standard Chartered is affected by the economic slowdown in East Asia.

BP will end up paying about $55 billion in claims from its 2010 oil spill in the Gulf of Mexico, which killed 11 workers on the drilling platform and spread oil over most of the Gulf. The liability covers only a small fraction of the damage done and is not a large enough sum of money to represent a threat to the company’s continuing operations.

In another major corporate liability case, Volkswagen has set aside €6.5 billion to cover costs related to its diesel software problems. Its ultimate costs could be several times higher if it has to buy back a large number of defective vehicles, and it is not known what banks might be affected by the liquidity problems that would result at Volkswagen in that scenario.

S&P has warned about economic impact on Australia in particular as a result of a predicted recession in China.

Milwaukee-area bank Securant Bank & Trust has issued $11 million in new stock, equal to about 6 percent of assets. It’s a move that the bank said was necessary to avoid bankruptcy. Securant had spent the last two years selling assets and cutting costs after the FDIC ordered the bank to raise capital and improve its operations.