These banks have the most exposure to the battered energy sector
Investors had better worry about banks with significant exposure to the oil and natural gas industry, in the wake of Saudi Arabia’s decision to cut oil prices and increase production at a time of greatly reduced demand.
Very high energy-industry credit exposure relative to TCE could signal trouble if borrowers begin to default en masse, because then the banks need to immediately add to loan-loss reserves, which would wipe out profits and lower equity. It could lead banks to suspend share buybacks, stop increasing dividends and even lower dividend payouts.
• J.P. Morgan Chase’s JPM, -11.07% oil and gas loan exposure was 7% of TCE as of Dec. 31, according to KBW. In its annual report , the largest U.S. bank said total credit exposure to the oil and gas industry was $41.57 billion, or 4.4% of wholesale credit exposure, net of hedges, and 22.1% of TCE. • Wells Fargo WFC, -9.16% had oil and gas loan exposure of 10% of TCE as of Dec. 31, according to KBW. On page 61 of its 10-K, the bank said its total loan portfolio for the oil, gas and pipeline industries totaled $13.56 billion, or 1% of total loans.
On March 8, after Saudi Arabia announced its oil price cuts and plans to increase production, Bove sent a note to clients expressing particular concern for the big four.He listed Comerica CMA, -13.68%, KeyCorp KEY, -13.14% and Regions Financial RF, -14.48% as regional banks that “may be hurt.”
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