The Federal Reserve Bank of New York has been probing major financial firms’ exposure to BP PLC to ensure that if the oil giant buckles under the costs of the Gulf oil spill, it won’t put Wall Street or the global financial system at risk, according to two sources familiar with the matter.
After poring over documents and asking banks about their exposure to BP over the past two weeks, the Fed found no systemic risk and hasn’t asked firms to alter their credit relationships with BP, the sources said.
“The Fed gave banks’ exposure to BP a passing grade,” one of the sources said on condition of anonymity.
Beyond BP’s survival prospects, the Fed examination underscores market uncertainty about how the spill’s staggering clean-up bill might affect Wall Street, a fragile economic recovery, or the multitrillion dollar energy market.
BP until recently had stellar credit ratings and generated US$30 billion of cash from its oil and gas production and trading over the last year, making it a golden counterparty for many financial firms that trade in energy, including the largest Wall Street banks.
Since April, when it began trying to plug an oil spill that has spewed up to 60,000 barrels a day into the US Gulf, the company has lost US$100 billion in stock market value and suffered several credit downgrades.
The soaring liability risk raised concern in banking circles that the company’s financial woes could spread outside BP, prompting the Fed’s examination.
Should the unexpected happen and BP file for bankruptcy, the economic stakes are huge, potentially affecting the portfolios of some of the world’s top banks and funds, not to mention up to 23,000 US jobs, the price of oil and the easy credit that banks give to big oil companies.
Fed and BP officials declined to comment. Banks that trade with BP wouldn’t comment publicly.
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