Export-Import Bank Fights Energy Default Specter

January 27, 2016Energyby EW News Desk Team

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With oil falling below $30 again, the Export-Import bank has moved in an effort to help small energy companies avoid default.  The bank announced its efforts to work with businesses to fight the fall in oil prices and the concurrent revenue decline. Speaking to CNBC, an American financial cable news channel, Ex-Im Bank Chairman Fred Hochberg said the bank has committed itself to making sure that smaller companies have the liquidity and financing necessary to avoid default.

"Everybody's got to compete much harder and sharpen their pencils to get those orders. Where we step in is making sure they have the financial tools to compete effectively,” he said in an interview Tuesday.

Global Financial Crisis Comparisons

Hochberg went on to say that the bank has worked closely with small oil firms, who have grown increasingly dependent on them, while larger companies also feel increased pressure from the commodity decline. He compared the situation to the subprime mortgage crisis that lead to the 2008 financial meltdown, noting that the bank wants to avoid a similar catastrophe.

"In the peak of financial crisis, we did over $36 billion worth of loans and insurance. A year ago, we did $20 billion, because there was a lot of liquidity and excess capital in the market. If it tightens, that's where we come back into play to support businesses and even out those curves, ensuring exports are still flowing,” he said.

Nonetheless, Hochberg added that the bank takes a “fiscally modest” approach to lending and remains “prudent” about its loan decisions.

Market Turmoil

The fall in oil prices traces back to the fall in emerging market and European stock markets, though those occurred for different reasons.  In China and Asia, the fall in oil has served as a reflection of weakening consumer demand in China and thus a need to sell off equities. The Shanghai Composite fell over 6.4 percent on Tuesday, with Hong Kong and Japan falling around 2.4 percent.

In Europe, stocks fell as investors worried that Germany’s biggest manufacturing machinery buyer—namely, China—suffers from a weakened economy, and therefore represents a growth limitation for Germany, the Eurozone, and Europe as a whole. Germany fell 0.6 percent with similar losses in London and Paris.

The American Exception

The United States managed to buck the trend despite a close and continually emerging correlation between the S&P 500 and oil prices. Even as oil fell below the $30 watermark that served as a significant support level, the S&P 500 shrugged the decline and saw strength throughout the day.

Consumer confidence rose 1.8 points to 98.1, exceeding expectations, while the PMI services index stayed steady at 53.7. Additionally, the Federal Housing Finance Administration saw home prices rise 0.5 percent on a month-to-month basis and up 5.9 percent on a year-over-year basis. That also helped the FHFA House Price Index rise above its pre-crisis peak in March 2007.