Published on September 24th, 2020 | by Steve Hanley
September 24th, 2020 by Steve Hanley
You remember Well Fargo, don’t you, the bank that induced its employees to create millions of fake accounts so it could soak its customers with exorbitant fees? According to Wikepedia, starting in 2016, “Wells Fargo clients began to notice the fraud after being charged unanticipated fees and receiving unexpected credit or debit cards or lines of credit. Initial reports blamed individual Wells Fargo branch workers and managers for the problem, as well as sales incentives associated with selling multiple ‘solutions’ or financial products. This blame was later shifted to a top-down pressure from higher-level management to open as many accounts as possible through cross-selling.”
In the end, Wells Fargos’ CEO was forced to resign and the bank paid several billion dollars in fines. But that was just one aspect of the bank’s shady business practices. According to a joint report by the Rainforest Action Network and Oil Change International, Wells Fargo has provided more loans to fracking companies since the Paris Climate Accords were signed than any other financial institution. JP Morgan Chase is in second place on their Wall of Shame.
An Indictment Of Top US Banks
The report is a damning indictment of top US banks. In a press release, RAN and OCI say, “The 51 U.S .fracking-focused companies analyzed in this report received $224 billion in financing since the Paris Agreement was adopted with almost 40% of that financing coming from JPMorgan Chase and Wells Fargo alone. Combined with Citi and Bank of America, these four major Wall Street banks provided over half of financing for U.S. fracking-focused companies since the Paris agreement.” Here’s more from the report.
Fracking is highly capital intensive. It costs a lot of money to drill new wells, and the wells are rapidly depleted, so frackers constantly need to raise new money to keep drilling. If oil prices were high enough that the frackers could make enough profit to pay for their bnew wells themselves, their business model might work. But since the fracking boom took off in the late 2000s, oil prices have rarely been sufficiently high, so the industry has in effect operated as a Ponzi scheme, where the frackers pay off old loans with new loans
rather than with profits.
That’s like using your MasterCard to pay off your Visa bill. You can do it (and lots of people do), but why would a supposedly rational lender like Wells Fargo continue to follow such risky lending policies? The report continues:
From 2010 to 2020, large publicly traded U.S. producers poured a total of $1.18 trillion into drilling and pumping oil and gas, mostly in fracking. But they made only $819 billion in cash from their oil operations — a combined loss of $361 billion. Prominent analysts have warned for years that the fracking industry is a machine to destroy capital. Yet banks have consistently ignored this message, as well as pleas from communities and environmentalists about the industry’s terrible impacts. Why the banks chose to ignore these messages is a story of short-term greed drowning out long-term rationality.
Financial journalist Bethany McLean has pointed out now-bankrupt Chesapeake Energy paid banks more than $1.1 billion in underwriting fees between 2000 and 2012. It was no secret that Chesapeake was reliant on constant infusions of new debt to support its leases of new acreage and drilling — and its executives’ lavish lifestyles. “I have never seen a more shameful document” than the Chesapeake annual statement to shareholders, one investor wrote to the company’s board in 2009. “If I could reduce it to one page, I would frame and hang it on my office wall as a near perfect illustration of the complete collapse of appropriate
corporate governance.” But to the banks supporting Chesapeake’s unsustainable excesses, the fracking company was just another source of lucrative fees, so the infusions kept coming.
Officials at RAN and OCI are scathing in their condemnation of these rogue banks. “The fracking sector has become a poster child for the serious problems facing the U.S. oil and gas industry,” says Alison Kirsch, lead researcher for RAN’s climate and energy program. “The disastrous climate consequences of fracking, as well as its horrific community health impacts, are well known but by continuing to pour billions of dollars into this dying sector, banks are also injecting a real level of systemic risk into the U.S. economy.”
Rebecca Concepcion Apostol, U.S. Program Director at Oil Change International, adds, “Banks and asset managers have enabled the oil and gas industry’s destructive boom and bust cycles for generations. Our planet cannot afford another oil boom. We need regulators, shareholders, and the public to force banks to consider the climate impact and demand they stop financing destructive and unstable business activities. Our collective health continues to be at risk and we cannot let banks fund another oil boom when this pandemic passes.”
“The money that these banks are pouring into the troubled fracking industry has had real impacts on communities in the shale fields of my state since the fracking boom began and will continue to have impacts long after the last well is drilled. Continuing to prop up an industry that was failing even before the pandemic hit means more devastation that will be on the backs of Pennsylvanians to clean up,” said Karen Feridun, founder of Berks Gas Truth, a grassroots citizens’ group fighting to bring an end to unconventional natural gas drilling in Pennsylvania.
“The planet cannot afford any more oil booms,” the joint report declares. “Thankfully, public disgust with the fossil fuel industry and the rapid growth of the clean energy economy mean the seemingly endless demand growth that pulled the industry out of previous doldrums appears to have crested. Ensuring that oil does not boom again will require banks to act on their supposed concern for climate change and refuse to fund a new round of fracking expansion. At the same time, regulators and shareholders must act to force banks in the right direction, for the sake of our communities and climate.”
Not So Fast, Says The SEC
This week, the Securities and Exchange Commission, the same organization that went crazy when Elon Musk dared to tweet about his company’s prospects of a private buy out, rewrote its rules to bar virtually all initiatives by small, independent shareholders. According to the Council of Institutional Investors, by a 3-2 vote, the SEC, whose stated mission is to be an advocate for investor’s, approved fundamental changes that will deprive many shareholders of the right to submit proposals to be voted on at U.S. public companies. Specifically, the SEC amended Rule 14a-8, also known as “the shareholder proposal rule,” to significantly raise the ownership thresholds required to file and to resubmit proposals.
“The amendments weaken the voice of investors and jeopardize faith in the fairness of U.S. public capital markets by making the filing process more complicated, constricting and costly,” says Amy Borrus, CII’s executive director. “The result will be fewer shareholder proposals — and that is precisely the goal of the business lobby that pressed the SEC to make these changes. Simply put, CEOs and corporate directors do not like being second-guessed by shareholders on environmental, social and governance matters.”
The new rules will make lead to less transparency regarding corporate ESG policies at a time when more transparency is required in order to make certain corporations are following through on their commitments to environmental goals. 3 of the members of the SEC were appointed by the current president. Can you guess which three they might be, based on their voting record?
As George Carlin warned us years ago, America is a big club owned lock, stock, and barrel by the wealthy. “It’s a big club,” Carlin said, “and you ain’t in it!” If you have a moment, read his full, unedited remarks. They are not so work friendly but then again, neither is what is happening to America today. Elizabeth Warren pushed and pushed and pushed for a Consumer Financial Protection Bureau but as soon as the new administration came to power, it gutted the CFPB and make Warren look like a screaming communist agitator. She is an agitator but she is no communist. Just someone who is sick to death of how ordinary Americans get screwed over daily by the wealthy and their captive politicians.
51 fracking companies have declared bankruptcy since the start of this year. How many will be responsible for cleaning up their abandoned wells? If you said “None,” go to the head of the class. The fracking companies are in the big club. You’re not. Which means you get to pay to clean up their mess. Ain’t democracy grand?
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