Big Banks Provision for Energy Exposure: Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC), and Citigroup Inc (C)
JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC) And Citigroup Inc (NYSE:C) continue to face questions about their exposure to oil and energy lending. The week started off on a bad note for the oil sector due to United States and the Europe lifting the sanctions on Iran exporting oil. As a result, there is an excessive supply of oil in the market. OPEC has already been refusing to slash its production to retain its market share.
Higher Provision For Bad Loans
The current week saw worldwide oil prices trading below the $30 a barrel mark. The recent quarterly numbers of the three big banks suggest quarter-over-quarter growth in provision for bad loans from the oil sector. JPMorgan Chase & Co. (NYSE:JPM), which is considered to be the number one, indicated that it was closely monitoring the spillover effects of the oil and gas. The bank announced a $124 million as provision to manage a possible loss on loans to oil and gas sector. The bank noted that the provision could increase further to $750 million if oil continues to trade below $30 per barrel.
“Our energy book isn’t that large relative to JPMorgan Chase. We’re not worried about the big oil companies. These are mostly the smaller ones that you’re talking about these reserve increases on.” –CEO Jamie Dimon
Similarly, Bank of America Corp (NYSE:BAC) also made a credit loss provision of $0.8 billion in the fourth quarter, which was the same in the third quarter. However, it was only $0.2 billion in the year-ago quarter. The increased loan loss provision in the December quarter was mainly due to the weakening worldwide oil price. About $264 million was attributed towards provision for credit losses due to energy related charge-offs as well as reserve building for energy exposure.
More Slide Not Ruled Out
Wells Fargo & Co (NYSE:WFC) indicated during its fourth quarter results that its net charges grew to $831 million from $731 million in the third quarter. The bank attributed the increased provision to weak oil and gas price.
Total energy loan exposure for Wells Fargo stands at $17 billion which is two percent of the total portfolio, According to company executives.
Another bank, Citigroup Inc (NYSE:C) also bore the brunt as it registered 32% increase in its Non-performing loans to corporate from the year-ago quarter. Its loan loss reserves were up by $300 million in the energy sector. The company indicated that it might suffer $600 million in the first half of the current year if the oil price stayed around $30 per barrel.
“Gerspach said Citigroup’s overall exposure to energy stands at about $58 billion, down about $2 billion from October. About 68 percent of the portfolio is investment grade,” he said.
Most recently, Morgan Stanley (NYSE:MS) joined other brokerages in expecting the worldwide oil price to slide to $20 per barrel of oil. The worst was that Standard Chartered sees the price falling as low as $10 a barrel. That is the worst scenario being forecast by the bank.
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