Major US banks account for 20% of debts in Glencore

By Money Times

Oct 09, 2015 07:01 AM EDT

The major banks from the US have exposure to the debt of ailing commodity giant Glencore Plc. Bank of America, Citigroup, JPMorgan Chase and Morgan Stanley have reportedly lent $350million apiece to Glencore. North American banks contributed 20 percent of the total loan exposure of Glencore. The ongoing slump in commodities market adversely impacted the Swiss-based Glencore's performance. This indicates potential alarming situation for the American banks if embattled Glencore slips into a liquidity crisis. Glencore is engaged in commodity trading and mining activities. 

Analysts at CreditSights have estimated loan exposure to Glencore lenderwise statistics using data from Dealogic. Several banks including the US lenders are part of the $15.3-bn revolving credit facility. The four US banks -- Bank of America, Citigroup, JPMorgan Chase and Morgan Stanley-- leading the list of lenders to Glencore followed by four Canadian banks. 

Goldman Sachs and Wells Fargo were not figured in the list of lenders. It's estimated that about 60 lenders have lent their hand to Glencore as part of its revolving credit facility. The lending repayment period is typically one year to five years. 34 banks are in lead positions in the revolving credit facility.

However, all the US banks declined to comment on loan size and other details. The North American banks' exposure to the troubled Glencore is keenly watched by the market and investors as what would be the outcome if the commodity giant failed to beat back rumors of a liquidity crisis. The individual bank wise exposure to Glencore is still not made public. 

The $100-bn Glencore has become a cause of concern for the US banks ahead of their quarterly results. It's also estimated that financial regulators have undertaken stress tests on bank's abilities to withstand market shocks considering the exposures to Glencore and other ailing mining companies.

Glencore's loan structure includes letters of credit (LoC), unsecured debt, commercial paper, etc, according to CreditSights. However, loans to Glencore seem to be less risky as of now, opine some analysts.
The gross exposure including LoC, bonds, secured lending is pegged at $100bn. The bonds are valued at $36bn, giving net exposure of banks at $64bn. American and European banks have risk element to this extent, predict some analysts. 

Banks are expected to receive inquiry calls about their exposure to Glencore in the forthcoming third quarter earnings calls. Glencore shares recovered five percent on London Stock Exchange (LSE) from previous losses until 10 days ago. Glencore's stock was beaten in the market by over 30 percent. It lost over GBP 3.5bn ($5.33bn) in market value. 

Glencore is implementing debt reduction program aims at lowering the net debt from $30bn in June to $24bn by the end of 2015. The company has decided to skip dividend payment to investors and sell some assets as part of debt reduction program. 

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