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According to some estimates, the oil industry owes at least $200 billion to lenders, with the loans backed by oil and gas reserves. Many companies will not be able to pay off. Therefore, banks will manage their assets until the situation improves.
On Thursday, the stock market rose, with the indices and major stocks up. The financial industry did especially well: US bank stocks went up, as banks are getting ready for seizing energy assets.
Stocks of JPMorgan Chase & Co, Wells Fargo & Co, Bank of America Corp and Citigroup Inc all closed in the black. For example, JPMorgan Chase & Co (NASDAQ: JPM) stock closed at $102.76, 8.97% up. Wells Fargo (NASDAQ: WFC) stock ended the session 9.64% up, at $33.20. Bank of America (NASDAQ: BAC) stock jumped by 6.01% to close at $24.86. Citigroup (NASDAQ: C) shares climbed by 7.12% as well up to $47.41. After hours, all of them went further up.
Why U.S. Bank Stocks Soared
There are several reasons for the U.S. bank stocks to go up.
Firstly, the Federal Reserve announced a new $2.3 trillion program to help the U.S. economy recover. The banks will take part in the initiative by expanding lending to small businesses through the Paycheck Protection Program and the Main Street Lending Program.
Secondly, the US lenders will become operators of oil and gas fields across the U.S. in order to avoid losses on loans to energy companies that are at risk of going bankrupt. Because of the coronavirus pandemic and a drastic plunge in oil prices, oil and gas companies are suffering. Yesterday, OPEC and its allies OPEC+ agreed to cut oil production by 10 million barrels a day. However, the agreement has not stimulated oil prices to grow. Now, energy companies working in Texas and Wyoming are in debt, as their revenue has tanked and assets have plummeted in value.
According to some estimates, the oil industry owes at least $200 billion to lenders, with the loans backed by oil and gas reserves. Many companies say they will not be able to pay off. For example, Whiting Petroleum Corp has already filed for Chapter 11 bankruptcy. Chesapeake Energy Corp, Denbury Resources Inc, and Callon Petroleum Co have hired debt advisers.
Until the situation improves, major U.S. lenders will serve as operators of oil and gas fields. But before that, banks have to meet the Federal Reserve’s requirement that they do not plan to hold assets for a long time.
Currently, banks are setting up holding companies to take over limited liability companies (LLCs) containing energy assets. These LLCs would be owned proportionally by banks that take part in the original secured loan. Besides, banks will probably hire industry experts to run the oil-and-gas operations.