Big Oil Exposure of Big Banks: Citigroup Inc (C), Bank of America Corp (BAC), JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC)
Both oil prices and oil company-related stocks are witnessing sharp plunge over the last few months. Oil price crash could turn oil companies unprofitable as these companies witness immense pressure in meeting their expenses, including the interest payment over the outstanding debt. That should ring an alarm to the Wall Street banks, particularly those which are big lenders to the oil and energy sector. Any default on the part of oil companies in repayment of debt could be troublesome for the lending banks.
High In Absolute Terms
RBC Capital Markets analyst Gerard Cassidy ran through the filings of some of the major American banks in order to learn their exposure to this sector. It was found that JPMorgan Chase & Co. (NYSE:JPM) has $47 billion of loan outstanding in the sector followed by Citigroup Inc (NYSE:C) at $45.2 billion.
Wells Fargo & Co (NYSE:WFC) stands at the third spot with $25.4 billion lending whereas Bank of America Corp (NYSE:BAC) has $20.3 billion of outstanding loans. In terms of absolute numbers, these figures are huge, but as such form a very minor percentage of these banks overall holdings.
Not Significant Risks
Further, expanding the analysis of loan exposure to the oil sector by America’s top 20 banks shows that the numbers are manageable and an event of the worst-case scenario, banks would not take much impact. Meanwhile, there will some underlying weakness in the loan growth amid the oil price volatility but based on the numbers right now; the risks attached are not significant.
Moreover, there is the other part of the story as well. Banks do have the opportunity to benefit from the customers, who will profit by fall in oil prices. Therefore, it is a balancing act for banks, which could see loan growth in sectors that are driven by both fall in oil prices and a positive economic growth.
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