Larry McDonald: Banks Are Repeating 2007, Wells Fargo 'Heavily Exposed' To Low Oil Prices
Banks are making the same mistakes they made in 2007, Larry McDonald, head of macro strategies at ACG Analytics, told Benzinga's PreMarket Prep.
"All these banks when they made a loans a year-ago, none of the banking models have $30-$50 oil priced in. These models were all based on worst-case $60 oil or may be $55. Oil was $100 year-and half ago when these loans were made," McDonald said on Friday's show.
McDonald noted that banks like Wells Fargo & Co (NYSE: WFC) were "heavily exposed" as they made quite an "aggressive lending platform" in 2011-2014 on the energy space.
The expert said the $3 trillion oil debt globally would make put further pressure on oil prices.
"What is happening is the reason there would be lot more pressure on oil is because of the said rates kept to zero in 2009-2014 and all these loans were made at ridiculous levels. At the end of the day, you have to keep paying interest rates on those loans," McDonald said.
As such, he said oil will be trading at $40-$43 level and McDonald would be a "big seller of oil here."
Crude oil was recently down 3.21 percent to $40.37.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.