Month: March 2017

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Authored by Alex Thomas via TheAntiMedia.org,

History is full of powerful families that have left their mark on the political and economic systems of their age. During the Italian Renaissance, there were the Borgias and Medicis. In the United States, a number of families have realized America is not only the land of opportunity but also the land of wealth and dynastic power. We’ve had the Astors and Rockefellers, and even the Rothschilds have a foothold in the American power system.

More recently, the Koch brothers have drawn attention to themselves, and though Charles and David generally try to avoid the spotlight, their fingerprints are all over the political system. Apparently, it’s tough to be the mysterious Wizard of Oz when you’ve bankrolled half the politicians in the Emerald City. Though they’ve historically backed Republicans, the pair has also opposed President Trump. Only last week, when the administration’s Obamacare repeal died before a vote, it was brought down by the Freedom Caucus, a group of congressmen loyal to the Freedom Partners, a political arm of the billionaires.

However, under the Trump administration, a new family is entering the generally cemented world of D.C. power-grabbing. The Mercer family is headed by Robert Mercer, who the New Yorker characterized as “a reclusive Long Island hedge-fund manager, who has become a major force behind the Trump Presidency.” And while Mercer is still a relatively new face on the scene, he’s been building his influence for several years. Like a brilliant chess player, he has been placing his pieces exactly where they can inflict the most damage.

The Mercer patriarch is constantly described as “a brilliant but reclusive computer scientist.” He made a considerable portion of his wealth as CEO of the hedge fund Renaissance Technologies. In their profile of him, The Guardian wrote that Mercer “very rarely speaks in public and never to journalists.” I asked a handful of D.C. contacts, people usually quite willing to talk to me as a journalist, for more information about the family and was met with a wave of the hand or a refusal to go on record — even to be quoted as an anonymous source.

As The Guardian noted, Mercer is a hard man to find, and so “to gauge his beliefs you have to look at where he channels his money.” Last week, the family appeared at a conference in Washington D.C. sponsored by the Heartland Institute, an organization they pumped over $5 million into between 2008 and 2015. It is best known for its efforts to deny climate change. The Washington Post sent reporters to that conference, but unsurprisingly, the Mercers (Robert and his daughter Rebekah) refused interviews.

In their report, the Post noted a number of familiar and prominent faces in the audience, including Myron Ebell, a scientist who has become the go-to man for climate change denial. Ebell even led President Trump’s EPA transition team.

Mercer was influential in putting President Trump in the White House, pumping millions into GOP super PACs. The New Yorker’s profile of him even paints him as a man who endorses the sort of fringe theories that are common on alt-right sites like Infowars or Gateway Pundit. A colleague stated that “Mercer insisted at a staff luncheon that Clinton had participated in a secret drug-running scheme with the C.I.A” (though the C.I.A. has played a role in drug schemes in the past, evidence of this particular theory is shaky at best). In a statement to the Wall Street Journal, Trump declared, “The Mercers are incredible people who truly love this country and go all out to protect America and everything it stands for.”

The Mercers’ success arises from the family’s ability to invest their money in the most strategic pockets and come out big. While most Democrats and old school conservatives were busy funding think tanks and pumping their cash into candidates, the Mercers put their money into Breitbart, the news organization that has become synonymous with the Trump presidency. The Wall Street Journal reported that shortly after Steve Bannon met Mercer, “Mr. Bannon drew up a business plan and term sheet under which the Mercer family bought nearly 50% of Breitbart News for $10 million.” Bannon is the former chair of Breitbart news and now a top White House strategist who is widely seen as the most powerful man in Washington.

Despite their hefty backing, Breitbart has struggled to be recognized as a legitimate news organization in Washington DC. Though they have a number of very talented reporters, their top correspondent in the capitol is seen by many traditional journalists as a bad joke. On Monday, Breitbart was passed over for a Congressional press pass, which would have minted them as big league. Politico reported that the reason for the Committee of Correspondents’ denial was “members were not satisfied with the information provided thus far regarding the right-wing website’s connections to the White House and the Republican mega-donor family the Mercers.”

Nevertheless, it seems the Mercer family’s influence in Washington is only beginning. Amid the rise of populism, they have funded all the right players. With their funding of climate change denial, they are eager to see regulations rolled back. Under President Trump, there’s a fair chance that will happen. They put their money behind Breitbart, which is among the most powerful news outlets in the nation and has the ear of the White House. The Washington Post reported that the family had pumped millions into The Media Research Center, which is a right-leaning media watchdog. They’ve contributed to The Federalist Society and The Heritage Foundation — both conservative think tanks with huge influences on politicians. If the family continues to play their hand this well, they’re sure to continue shaking up Washington D.C.

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With Brexit officially a go, banks in Britain are scrambling to undo months of verbal damage, and reassure their London employees over possible Brexit disruptions, a potential shift in jobs to continental Europe, and also talking down warnings made in recent months about leaving the City, some in now dashed hopes of getting a Brexit revote.

It now appears that many of those “threats” were hollow and as Reuters reports, investments banks such as Goldman and Nomura were among those who sent messages to employees in London as they work out how to keep serving clients across the European Union without spooking staffers, prompting employee defections to more hospitable employers. Richard Gnodde, CEO of the European arm of Goldman Sachs, stressed that no big changes were imminent even though he said last week that the Wall Street bank would begin by moving hundreds of staff as part of its “contingency plans” for Brexit. It seems a lot can change in one week.

“All of this work leads us to conclude that although Brexit may well bring some changes to our footprint, a lot will continue to operate as it does today,” he said in a voicemail sent to all London employees’ phones last Friday.

Morgan Stanley also informed employees in Europe that no decisions had yet been made on changes for when Britain departs. Rob Rooney, CEO of Morgan Stanley International, was blunter in updating staffers on the work of a committee comprising senior leaders at the bank which has been making Brexit contingency plans for over a year. “As prudence would dictate, we have been preparing for a worst case scenario, in which we would need to establish a more significant entity within the EU 27,” Rooney said in a memo to staff on Wednesday seen by Reuters. “We continue to monitor the situation closely and, when appropriate, will take the necessary decisions and begin to execute on our plans.”

Cited by Reuters, Gnodde said Goldman Sachs could make long-term decisions only after May’s two years of negotiations to exit negotiations to exit the EU were complete. “We also understand that you will have many questions regarding the implications of Brexit,” he said. “We are sensitive to those concerns, and want you to know that we will share any information on changes that will impact our European footprint as quickly as we can.”

Fearing they could lose top-performing staff, banks are treading carefully as they contemplate moving London-based workers to continental centers such as Frankfurt, Paris and Luxembourg, or paying them off and hiring employees locally.

In a similar message by Japan’s Nomura, the bank said in a message to staff on Wednesday that although it had been actively planning for Brexit, no final decision had been made on either location or timing of any new European entity, according to a source familiar with the matter.

Banks are enacting two-stage contingency plans for Brexit. The first involves relatively small numbers of jobs to make sure the requisite licenses, technology and infrastructure are in place, while the next requires longer-term thinking on what their European business will look like in the future. This is when bigger moves might take place.

According to Reuters, the British Bankers’ Association and the City of London Corporation, which runs the financial district, said in statements it is crucial that after the conclusion of the talks banks retain as much access to the single market as possible.

They both also said that Britain should announce a staggered departure from the EU that would allow British-based banks to prevent market disruption.

 

Regulatory and banking experts working for the City of London and lobby group TheCityUK are drawing up proposals for a ‘mutual recognition’ system.

 

Under this, the EU and Britain would broadly accept firms in each other’s financial markets because their home regulatory systems apply similar standards. The aim is for London-based banks to keep serving continental clients, although skeptics say mutual recognition is largely untested globally and would struggle to win approval within the EU.

That said, perhaps in this particular case London banks are more worried than they should be: after all, with banks in Europe hurting and few actively hiring (Deutsche Bank’s “no bonus” policy will hardly prompt massive demand for lateral moves), with the buyside aggressively cost-cutting, and hedge funds shuttering left and right despite all time highs in global stocks, just where are the “panicked” bankers going to go?

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Authored by Tsvetana Paraskova via OilPrice.com,

The recent drop in oil prices, which has almost wiped out the price gains since OPEC announced its supply-cut deal, is coming just ahead of the spring season when banks are reassessing the credit lines they are extending to support drillers’ growth plans.

WTI front-month futures have been trading below $50 a barrel for a couple of weeks, while Brent crude slipped briefly below $50 on March 22, dropping below that psychological threshold for the first time since November 30, the day on which OPEC said it agreed to curtail collective oil production in an effort to rebalance the market and lift prices.

Lenders review the oil and gas companies’ creditworthiness twice a year, in April and in October, in the so-called borrowing base redetermination. The recent drop in the price of oil may prompt banks to be more cautious in their assessments, but still, things look brighter for oil firms than they did in March last year when oil prices were consistently below $40 a barrel.

This time around, analysts expect reductions in credit lines should oil prices drop below $45 until creditworthiness reviews are over, according to Bloomberg.

These assessments are closely connected to the price of oil, given the fact that the value of the companies’ oil and gas reserves serve as the basis for their creditworthiness assumptions.

Nonetheless, reviews are less likely to lead to drastic credit cuts this spring because the companies that have survived the oil price crash have emerged leaner after major cost cuts, asset sales, and focus shifting to easier, cheaper, and more lucrative areas, such as the Permian. U.S. shale players have been locking in future production, and the best drilling areas are now estimated to be profitable at as low a price as $40 per barrel. 

For last year’s spring borrowing base redetermination season, Houston-based law firm Haynes and Boone said in a survey prior to the reviews that energy lenders and borrowers were largely expecting the ability to borrow against reserves to be significantly decreased by an average of more than 30 percent. Haynes and Boone’s spring 2016 survey showed that 79 percent of respondents expected borrowers to see their bases decline, up from 68 percent in the spring of 2015.

In the fall 2016 survey ahead of the latest borrowing reassessment this past October, Haynes and Boone said that respondents on average expected 41 percent of the borrowers to see a decrease. This decrease was expected at an average of 20 percent, in which lenders were expecting a 16-percent decrease and borrowers a 29-percent decrease.

So, ahead of the latest survey, bankers were decisively more optimistic than E&P borrowers were. According to Haynes and Boone’s press release, this could have been an indication that “exploration and production companies themselves are more pessimistic as they see their reserves more realistically with sustained low commodity prices likely.”

However, the fall 2016 survey also showed that respondents did not see traditional banks as the biggest capital providers over the next 12 months. Private equity firms and high-yield private debt entities were expected to play the major roles in funding, with 57 percent of respondents pointing to this. Just 14 percent expected traditional banks to be one of the two top sources of capital, Haynes and Boone said.

According to Wood Mackenzie, 118 oil and gas companies that have announced 2017 budgets are planning to spend a combined $25 billion more than they did last year, or 11 percent more than in 2016. Some majors and internationally focused firms are still planning budget cuts amid capital discipline, but U.S.-focused companies are expected to account for $15 billion of the $25-billion increase in spending, WoodMac said.

The price of oil will surely be the major component in banks’ reviews of borrowing bases. Still, decreases are not expected to be as drastic as they were at the height of the oil price slump.

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After a stunning healthcare defeat last week, delivered at the hands of his own party no less, Trump took to twitter to predict the imminent ‘explosion’ of Obamacare.

ObamaCare will explode and we will all get together and piece together a great healthcare plan for THE PEOPLE. Do not worry!

— Donald J. Trump (@realDonaldTrump) March 25, 2017

The Democrats will make a deal with me on healthcare as soon as ObamaCare folds – not long. Do not worry, we are in very good shape!

— Donald J. Trump (@realDonaldTrump) March 28, 2017

As it turns out, that ‘explosion’ could come faster than anyone really expects as legislators and health insurers have to make several critical decisions about the 2018 plan year over the next 2 months which could seal Obamacare’s fate.

As the Atlanta Journal Constitution points out today, the Trump administration has until May 22nd to decided whether they will continue to pursue the Obama’s administration’s appeal to provide subsidies to insurers who participate in the federal exchanges. 

As background, in 2014, House Republicans sued the Obama administration over the constitutionality of the cost-sharing reduction payments (a.k.a. “taxpayer funded healthcare subsidies”), which had not been appropriated by Congress.  Republicans won the initial lawsuit but the Obama administration subsequently appealed and now Trump’s administration can decided whether to pursue the appeal or not.  The CBO estimates the payments would total roughly $10 billion in 2018.

One key to insurers selling plans in the marketplace are reimbursements they receive called cost-sharing reductions. These aren’t the same as the tax credits that people receive to help pay their premiums; it is financial assistance to help low-income people pay their out-of-pocket costs, such as deductibles. The Congressional Budget Office projected those payments would add up to $7 billion this year and $10 billion in 2018.

 

But for insurers, there’s a question over how long that money will be delivered, due to an ongoing political and legal dispute about whether the cost-sharing money should be distributed at all.

 

In 2014, House Republicans sued the Obama administration over the constitutionality of the cost-sharing reduction payments, which had not been appropriated by Congress. The lawmakers won the lawsuit, and the Obama administration appealed it. Late last year, with a new administration on the other end of the suit, the House sought to pause the proceedings — with a deadline for a status update in late May.

 

The Trump administration and House lawmakers have to report to the judge this spring. If the Trump administration drops the appeal, it would mean the subsidies would stop being paid — a huge blow to the marketplaces and millions of people. If lawmakers wanted the payments to continue, they would have to find a way to fund them. One opportunity for that is coming up fast, the continuing resolution that must be passed by April 28. If the Trump administration continues the lawsuit, it will be in the odd position of fighting its own party.

As we’ve noted before, several large insurers, including UnitedHealth Group and Aetna, have already made the decision to exit Obamacare due to financial losses.  Now, Molina Healthcare is pondering whether it would be able to continue to participate in the absence of federal subsidies.

Big insurers like UnitedHealth Group and Aetna have mostly left the individual market over the years, citing financial reasons. Several counties across the country only have one insurer offering ObamaCare plans.

 

Now Molina Healthcare is signaling it may downsize its presence in the market, or pull out altogether, if Congress or the administration doesn’t act to stabilize it. Molina has 1 million exchange enrollees in nine states this year.

 

“We need some clarity on what’s going to happen with cost-sharing reductions and understand how they’re going to apply the mandate,” said Molina CEO Dr. Mario Molina.

 

Asked if Molina would leave ObamaCare if the payments are stopped, the CEO said: “It would certainly play into our decision. We’ll look at this on a market-by-market basis. We could leave some. We could leave all.”

 

Mario Molina, chief executive of Molina Healthcare, predicted that if the cost-sharing reductions are not funded, it could result in premium increases on the order of 10 to 12 percent.

While all this uncertainty swirls, health insurers must decide — soon — whether to make rate filings to sell insurance in 2018. The deadline varies by state, but for those that have marketplaces run by the federal government, it is June 21. Filing doesn’t mean that insurers will participate; they’ll have months more to negotiate and could still drop out. But it’s the first step toward offering plans in 2018 and should provide a signal about what the marketplaces are likely to look like.

Meanwhile, it seems pretty likely that Obamacare couldn’t survive another collapse in coverage like we saw in 2017 (charts per the New York Times):

2016 healthcare insurance carriers by county:

2017 healthcare insurance carriers by county:

The first step is admitting you have a problem.

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The top for the first half of 2017 probably just hit.

Markets do not react to what everyone knows. Markets react to surprises. And the surprise today is that the Trump administration will not be able to implement rapid reform.

Since election night, the stock market has assumed that President Trump would somehow repeal Obamacare, reform the tax code, and announce a massive infrastructure project almost immediately.

The TRUTH is that whatever Trump is able to accomplish regarding these issues will take place in late 2017 if not early 2018. Trumps’ top economic advisor Treasury Secretary Steve Mnuchin confirmed this in a media interview earlier this month.

However, the market was too caught up in the hype to care. The failure to even get a vote on an Obamacare repeal in the House is a wake up call.

Stocks will now begin to adjust to the fact that all reform/ major policy changes will be taking place months down the road. That “adjustment” will see stocks moving to that red circle shortly.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming collapse will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

Tonight this report will no longer be available to the public.

To pick up one of the remaining copies, swing by:

http://ift.tt/1HW1LSz

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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In what has emerged as most concerning “anti-recovery” narrative, last week we most recently showed that both total and C&I loan growth had been slowing down sharply in recent weeks, with commercial and industrial loans growing just 2.9% recently.

While there had been no definitive explanation for this sudden slowdown, which recently prompting the WSJ to inquire “who hit the brakes?” overnight Goldman analyst Spencer Hill ventured one explanation which appears plausible. In a note titled “The C&I Loan Growth Slowdown and the Credit Line Payback Story” the Goldman economist writes that the cognitive dissonance triggered by a sharp deceleration in C&I (commercial and industrial) loan growth amid generally encouraging growth data may be explained by energy sector contraction in 2015, 2016.

According to Goldman, the reason for the slowdown may come down to nothing more than a base effect as many commodities firms began drawing on credit lines in late 2015 as financial conditions tightened, and the debt issuance window closed. Then, after a brief acceleration in early 2016, bank loan growth waned in late 2016, early 2017, once capital markets reopened and banks renegotiated, restructured credit lines. As a result, the recent slowdown is merely a function of stable demand in 2017 relative to a burst in loan activity in early 2016.

Hill suggests that other possible explanations, like less investment demand or sudden tightening in credit conditions, seem at odds with recent growth, financial indicators, although there is no way to know definitively.

That said, Hill notes that C&I lending accelerated during financial dislocations of autumn 2008 as businesses drew on credit lines; after peaking in Oct. 2008 near the height of the crisis, C&I lending declined for 24 consecutive months, lagging broader economic recovery of 2H 2009 and 2010, as businesses gradually de-levered balance sheets and repaid (or defaulted on) bank loans. The Goldman economists sees a version of this narrative playing out again today, though on a smaller scale mostly within the energy and commodities sectors.

He caveats his assumption by saying he believes “reasonable estimates” based on available data suggest an impact of this magnitude; and lacks comprehensive data demonstrating commodities sector accounts for most C&I bank lending deceleration. In other words, while plausible, it is merely a theory.

Here is the report summary:

The C&I Loan Growth Slowdown and the Credit Line Payback Story

• The sharp deceleration in commercial and industrial loan growth has generated a sense of cognitive dissonance among market participants, who are otherwise confronting generally encouraging growth data. Candidate explanations such as a step-down in investment demand or a sudden tightening in credit conditions seem at odds with recent growth and financial indicators, including a strong start to the year for corporate debt issuance.
• An alternative explanation is that C&I bank loans represent yet another casualty of the energy sector contraction of 2015 and 2016. More specifically, we believe the current C&I slowdown reflects payback from credit facility usage by commodities firms, many of which began drawing upon credit lines in late 2015 as financial conditions tightened and the debt issuance window closed. Following a brief acceleration in C&I lending in early 2016, bank loan growth waned in late 2016 and early 2017 once capital markets reopened and banks renegotiated and restructured credit lines. Available loan data are consistent with the timing and sector-level incidence of these inflections, and in our view, the credit line payback story is the most likely explanation of the current C&I loan shortfall, which we peg at roughly $100bn.

And the details:

Following further improvement in US survey data and several encouraging real activity reports, our Current Activity Indicator (CAI) is now showing 4.0% for March, and our tracking estimate of Q1 GDP growth remains at an encouraging pace (+1.8%). Against this backdrop of fairly broad-based improvement, one notable laggard has been commercial and industrial (C&I) bank lending, which has exhibited an outright decline over the past six months. As Exhibit 1 illustrates, the magnitude of the slowdown is large, and we estimate the shortfall relative to the previous trend at roughly $100bn.

 

Exhibit 1: Sharp Deceleration in Commercial & Industrial Bank Lending Over the Last Six Months
 

 

Source: Federal Reserve System, Goldman Sachs Global Investment Research

 

While C&I lending generally declines during and after recessions, its relationship with the business cycle is inconsistent, sometimes exhibiting counterintuitive behavior. For example, C&I bank loan growth accelerated during the financial dislocations of autumn 2008 as businesses drew upon credit lines in the wake of the credit crunch. After peaking in October 2008 near the height of the crisis, C&I lending declined for 24 consecutive months – lagging the broader economic recovery of 2H09 and 2010 – as businesses gradually de-levered balance sheets and repaid (or defaulted on) bank loans. We believe a version of this narrative is playing out again today, yet on a smaller scale within the energy and commodities sectors.

 

Debt markets seized up in late 2015 as oil prices fell into the mid-40s – below the break-even cost of production for many US shale producers – and the high-yield issuance window closed for roughly ten months (August 2015 – April 2016). Lacking access to capital markets and with internal cash generation impaired by lower commodity prices, many exposed firms were incentivized to draw upon pre-existing credit facilities. Overall C&I lending accelerated during this period, as visible in Exhibit 1.

 

At the same time, the deterioration in commodity prices weighed on financial results and interest coverage ratios in that sector, resulting in deteriorating overall C&I credit quality (see left panel of Exhibit 2). Within the commodities sector in particular, financial institutions recorded over $150bn of bank loans as either “Classified” or “Special Mention” – two classifications indicating potential credit concerns – based on data from the Office of the Comptroller of the Currency (right panel of Exhibit 2).

 

Exhibit 2: Non-Performing Bank Loans Began to Increase in Late 2015, Largely Reflecting Deteriorating Credit Quality Among Commodities Firms

Source: Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Goldman Sachs Global Investment Research

 

While the weekly bank lending data from the Federal Reserve System lacks industry-level granularity, quarterly data from company financial reports indeed suggest that some oil and gas firms significantly increased bank borrowing in early 2016, then subsequently drew down these balances over the remainder of the year. As shown in the left panel of Exhibit 3, publicly traded US energy firms reduced their balances of short-term borrowings by 35% (or $11bn) between 1Q16 and 4Q16, following a sharp rise during the previous 3 quarters (that itself coincided with commodities-related credit stress).[1]

 

Additionally, US oil & gas bankruptcies over the last two years have totaled over $70bn in terms of cumulative liabilities (right panel, Exhibit 3). To the extent that some of these liabilities represent bank loans, any subsequent defaults or collections would also reduce the current level of C&I lending. The timing and sector-level incidence of these various inflections are consistent with a “credit line payback story,” in which temporary credit facility borrowings in early 2016 were gradually paid back, as capital markets reopened and as banks renegotiated and restructured some credit lines.

 

Exhibit 3: Publicly Traded Energy Firms Reduced Short-term Borrowing by 35% Since 1Q16; Liabilities Associated With Oil & Gas Bankruptcies Totaled Over $70bn Since 2014

Source: Bloomberg LP, Dow Jones, Goldman Sachs Global Investment Research

 

Annual data from the Shared National Credits Program (Office of the Comptroller of the Currency) offers valuable sector-level insights in terms of the sizes of these credit facilities, and the most recent report (1Q16) shows total bank loan commitments to commodities firms totaling $938bn. More general research by the San Francisco Fed suggests that firms draw upon roughly a third of their credit lines during periods of tight credit conditions (on average). Additionally, FDIC data show that most C&I loans are made under commitment (81% on average in 2016).

 

Based on these considerations, a decline in credit facility usage by commodities firms – driven by a combination of voluntary repayments, collections, and defaults – would arguably be large enough to explain the current shortfall in C&I loan growth. For example, assuming the commodities sector was borrowing a third of its available loan commitments as of quarter-end 1Q16, then a 35% reduction in this balance over the remainder of the year would result in a decline in bank lending of $108bn.[2]

 

While we lack comprehensive data to demonstrate that the commodities sector accounts for the lion’s share of the deceleration in C&I bank lending, we believe reasonable estimates based on available data suggest an impact of this magnitude. Additionally, the alternative narrative of a sudden economy-wide credit crunch or investment bust seems at odds with the other information we have about the economy. Despite some softening over the last two weeks, investment grade issuance started the year at a record pace, and the high yield issuance window is now open, even for oil and gas companies. These trends are also reflected in other indicators of investment demand, credit supply, and financial conditions, as illustrated in Exhibit 4. Taken together, we see the “credit line payback” hypothesis as the most plausible explanation for the recent C&I lending weakness.

 

Exhibit 4: Broader Indicators of Credit Supply and Credit Demand Suggest Minimal Cause for Concern

Source: Bureau of Labor Statistics, Department of Commerce, Federal Reserve System, Bloomberg LP, Goldman Sachs Global Investment Research
 
* * *

If Goldman is correct, expect C&I loan issuance to spike every time oil slides and E&P companies rush to either draw down fully on revolver capacity and/or refinance existing debt with more debt. Alternatively, if and when oil is higher and working capital funding needs decline, companies may reduce their revolving credit needs, pay down secured debt, and lead to a reduction in overall loan growth.

That said, it will be interesting to see E&P companies in fact do this: if the events of 2016 taught us something, it is that when oil prices tumble and the borrowing base declines, it is then that companies are most in need of excess funding. As such it is unlikely that they will seek to actively reduce revolver borrowings, unless of course Libor and/or PRIME rise to the point where paying for the excess “revolver” cash on the balance sheet becomes uneconomical.

In any case, within the next few weeks we should know whether Goldman’s theory is right: if loan growth stabilizes as last year’s burst in secured credit borrowing is anniversaried, it will indeed suggest that E&P companies were the marginal swing factor in C&I loan issuance. If demand however continue to decline, the more unpalatable answer will have to be considered.

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