Monday, March 21, 2016

Banks continue to pull financing for coal; industry officials say coal is still part of nation's future

Banks continue to say no to coal. "JPMorgan Chase announced two weeks ago that it would no longer finance new coal-fired power plants in the U.S. or other wealthy nations," Michael Corkery reports for The New York Times. "The retreat follows similar announcements by Bank of America, Citigroup and Morgan Stanley that they are, in one way or another, backing away from coal. While coal has been declining over the last several years, Wall Street’s broad retreat is an ominous sign for the industry." Chiza Vitta, a metals and mining analyst with the credit rating firm Standard & Poor’s, told him, “There are always going to be periods of boom and bust. But what is happening in coal is a downward shift that is permanent.”

Corkery writes, "Coal, like railroads, steel and other engines of the nation’s industrial expansion in the 19th and early 20th centuries, helped drive Wall Street’s profits for generations. More than a century later, the coal industry is in a free fall, and the banks are pulling away. Some banks say they are trying to do their part to curtail climate change by moving away from coal projects and financing ventures that produce less carbon. But bankers also say there is a more basic reason for the shift: Lending to coal companies is too risky and could ultimately prove unprofitable." (SourceWatch map: Electricity produced by coal)
"Coal companies are being squeezed by competition from less expensive energy sources like natural gas and by stiffer regulations—pressures that show no signs of letting up," Corkery writes. "As a result, even the most secure loans—like those made to companies emerging from bankruptcy, known as debtor-in-possession loans—are increasingly off limits for many banks, according to bankers and industry lawyers. And it is not just big banks. Even many more daring investors like hedge funds and private equity firms, which are usually eager to pounce on industries in distress, are shying away from coal because of deep uncertainty about its future."

Some in the coal industry say banks are making a mistake, especially since coal still powers about a third of the nation's electricity, with coal powering the majority of electricity in Central Appalachian states, Corkery writes. Mike Duncan, president of the American Coalition for Clean Coal Electricity, an industry group, told Corkery, “Coal is part of our future, and I think the banks are taking a shortsighted view. They are ignoring a huge market and buying into rhetoric that just doesn’t work.” (Read more)

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