HSBC, Standard Chartered commodities exposures high as traders struggle
Standard Chartered and HSBC have notched high exposures to some of the world's biggest commodities traders at a time when low oil and raw materials prices are hitting trading houses.
Standard Chartered had about US$1.9 billion in syndicated-loan exposure at four major commodities traders, more than any other British-based bank, according to data from Sanford C Bernstein. Of that debt, more than US$1 billion was at Geneva-based Trafigura.
HSBC had the second-largest commodities exposure among British banks, with US$1.3 billion in syndicated lending connected to four firms, and roughly half of that at the world's biggest commodities trader Glencore.
The levels of exposure are a concern for the banks because many commodities - oil the key example - are trading at decade lows, hitting the profitability of trading companies and potentially impacting the repayment of the debt.
The S&P GSGI Brent Crude index has fallen about 55 per cent over the past 12 months.
While rating agencies have maintained investment-grade ratings on Glencore's bonds, unsecured senior debt maturing in May next year traded at below 93 cents to the dollar last week, or in the junk-bond pricing range, US media reported.
The yield on Trafigura's euro-denominated bonds rose steadily from mid-August before falling late last week. Trafigura is also heavily leveraged, with a 360 per cent total debt to equity ratio.
"The turbulence in commodities has resulted in the bonds of a number of key commodity players trading towards junk levels," London-based Bernstein analyst Chirantan Barua said in a note to investors on Monday. "Naturally investors are spooked about the banks' exposures to these players."
The exposures, especially at banks such as Standard Chartered, Barua argues, were already well known and priced into the banks' share prices.
The data from Bernstein shows that risk is spread throughout the banking sector, with Trafigura's debt to Standard Chartered equal to about 2.5 per cent the bank's book value. HSBC's Glencore exposure hit only 0.4 per cent.
Standard Chartered shares closed up 4.3 per cent in Hong Kong on Monday at HK$81.25, while HSBC closed up 2.19 per cent at HK$60.65.
