reuters | When Cubic Energy Inc's bankruptcy plan took effect on March 1, shareholders of the
Dallas-based oil and gas company were wiped out. Among the losers was
Wells Fargo & Co.
The
bank had a nearly 10 percent stake in Cubic Energy at the end of 2015 -
worth more than $25 million at the company's peak - through a private
equity-style unit called Wells Fargo Energy Capital.
The
No. 3 U.S. bank by assets, like its rivals, has billions of dollars'
worth of exposure to the struggling energy industry through regular
loans that are souring. But the case of Cubic Energy shows that Wells
Fargo went further into risky areas than other banks, and may now face a
reckoning.
The whole sector has
been devastated by a 60 percent plunge in oil prices from highs of over
$100 a barrel in 2014. The price drop has squeezed energy firms,
especially smaller ones, and made it harder for them to pay back loans.
Some
of Wells Fargo's most volatile exposure sits within Wells Fargo Energy
Capital, a unit that sought fat returns through equity investments and
high-risk loans to small companies like Cubic Energy, assuming the
energy boom would last.
On top of
the equity investment, Cubic owed Wells Fargo nearly $30 million in debt
as of Nov. 30, according to its reorganization plan. The bank received
land and other assets in Louisiana as part of the reorganization.
What
those Louisiana assets are worth today is anyone's guess, said Jon
Ross, who was Cubic's vice president of operations until it collapsed.
