Several banks spokesmen interviewed by American Banker on Monday sought to downplay market concerns over their exposure to Pacific Gas and Electric Co., the utility whose bankruptcy filing Friday raised the thorny issue of credit quality once again.
Bank of New York Corp., Bank of America Corp., and Deutsche Bank AG, were among the banks listed as claimants in the utilitys bankruptcy filing. However, most banking companies involved directly or indirectly were only reluctantly giving out specifics Monday. Ted Meyer, a New York-based spokesman for Deutsche Bank AG, said that through its own investing, underwriting, and lending activities, it has minimum exposure to the problem. As a trustee of bonds, the bank has no liability, he said.
According to the bankruptcy filing, Bank of New York Corp. has over $2.21 billion in claims against the PG&E Corp. unit. The company told American Banker Monday that it acts in a trustee capacity for the $2.21 billion on behalf of Pacific Gas bond holders. The company has no credit exposure, a company spokesman said.
Bank of America Corp. which, with J.P. Morgan Chase & Co., was one of the most active lenders to Pacific Gas, said that any losses would be manageable. Shirley Norton, a spokeswoman for the company, said that there is some confusion over the role of Bank of America. The $938 million commonly mentioned as our exposure is the total of a syndicated loan we managed. She declined to say how much Pacific Gas owes Bank of America.
J.P. Morgan Chase did not comment on the issue.
Wells Fargo, which analysts believe has exposure to Pacific Gas, also declined to give out numbers. But Larry Haeg, a spokesman for the company, said Wells Fargo has longstanding relationships with both PG&E and [Southern] California Edison that involve credit and noncredit products, but added that the company has never been a lead bank in handling the loans.
Though banks have offered little guidance on what kind of impact they might expect, analysts agree that most institutions involved should be able to swallow any losses without negative effects on earnings or their overall ratio of nonperforming assets.
But with little guidance from the banks, it is hard to tell, they said. We are left with guesswork, said Thomas Theurkauf of Keefe, Bruyette & Woods.
Katrina Blecher of Sandler ONeill & Partners, who follows Wells Fargo & Co., said she assumed Wells would give out the exact amount of exposure should the credit be severe. Nevertheless, investors are sensitive to all news on credit quality, she said.
Analysts agreed that the incident in California would not make a difference in the overall picture of credit quality, which is, of course, getting worse as the economy heads downhill.
The companies wont miss a quarter because of it, but one cannot look at this credit as a microcosm, Mr. Theurkauf said.
This is a sign that the issue is broadening out, said Catherine Murray of J.P. Morgan Securities. Most problems so far have either been industry-specific or leveraged. Cases related to the slowing economy are still ahead.
On Monday, Bank of America gained 20.4%, closing at $50.60, and Bank of New York rose 0.31%, to $48.49. Morgan Chase fell 0.07%, to $40.42, and Wells Fargo 0.63%, to $45.96. The American Banker index of 225 banks was up 1.16%, and the Standard & Poors 500 index rose 0.81%.
Laura Mandaro contributed to this column.