Futures & Commodities

Analysts say major U.S. banks on hook to Glencore

US banks exposed to Glencore

A new report estimates that Bank of America, Citigroup, JPMorgan Chase, and Morgan Stanley have lent $350 million apiece to the troubled commodity giant Glencore PLC — meaning they will be on the hook for potential losses if things deteriorate at the trading and mining company.

In a note issued late Wednesday afternoon, analysts at CreditSights used accountings of bank loans prepared by the data firm Dealogic to estimate who had lent what to Glencore as part of its $15.3 billion revolving credit facility. The analysts deduced that "North American banks accounted for 20 percent" of the revolver, according to the note, with four major U.S. banks taking the lead and four Canadian banks in similar positions. Goldman Sachs and Wells Fargo were notably absent.

Of the 60 or so lenders reportedly part of the revolving credit facility, which is broken up in to a one-year and a five-year tranche, about 34 banks are in lead positions, said someone familiar with the credit structure, with equal dollar exposure to Glencore. Spokespeople for Bank of America, JPMorgan and Morgan Stanley had no immediate comment, and a spokesman Citigroup declined to comment on the size of its loan.

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With Glencore struggling to beat back rumors of a liquidity crisis, which banks and trading partners are exposed to it has become a question of paramount importance to the market. In investor meetings and recent public disclosures, Glencore officials have offered additional color on their company's financing structure and how it could be affected by a credit-rating downgrade. But the details of how much individual banks have lent to it have remained obscure.

After a dramatic stock rout 10 days ago, Glencore shares have recovered substantially in public trading, finishing up nearly 5 percent on the London Stock Exchange on Wednesday. And the company is now undertaking a debt-reduction program that aims to trim net debt from roughly $30 billion as of late June to $24 billion by the end of the year through moves like eliminating its shareholder dividend and selling assets.

The CreditSights analysts noted that within Glencore's borrowing structure, which includes letters of credit, unsecured debt, commercial paper and other facilities in addition to revolving credit, other exposed parties could include money market funds, asset managers and insurers. For the banks, however, loans to Glencore appeared to be low-risk for the moment, they argued.

"While we expect banks to receive inquiries about their exposure to Glencore during their [third-quarter] earnings calls, we believe that it will be very much manageable within the context of [third-quarter] revenues," stated the note.