Message 32643512
CFTC PROVIDING RELIEF TO LARGE U.S. BANK ACTIVE IN OIL, GAS
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And here is why anyone who currently has a deposit account at CapitalOne may consider quietly moving the money elsewhere: according to Reuters, the CFTC designation entails a number of complex and costly reporting and compliance obligations, which the CFTC spokesman said could hurt the institution’s ability to keep lending.
In short, CapitalOne made a terrible trade, betting via derivatives that oil would not plunge to where it is now - at 17 year lows - and only CFTC intervention prevented a margin call of unknown magnitude from being sent to Capital One's corner office. Which is surprising considering that the bank is a relatively small player in the energy lending and financing business, with energy loans accounting for just 1.4% of its total loan book, according to its filings.
As part of that business, Capital One enters into commodity swaps with its commercial oil and gas clients to help them mitigate the risk of energy price swings and the related borrowing risks. Typically, those trades do not bring Capital One’s swaps exposure anywhere close to the CFTC’s registration threshold, according to the CFTC’s Friday notice.
But the 50% plunge in crude oil prices caused by the coronavirus and a flood of supply by top producers has seen its exposure on those swaps balloon, putting it on course to hit the threshold by the end of this month, the CFTC said.
As Reuters details, the threshold kicks in if a bank has $1 billion in daily average aggregate commodity swap exposure that is not secured by collateral, such as cash margin. Which, it appears, was the case with CapitalOne. |
