The biggest U.S. banks are keeping a close watch on plunging crude oil prices and are ready to set aside more money to cover potential losses on energy-related loans.
Oil prices, down more than 25 percent since the beginning of 2016, on Wednesday fell below $27 a barrel, the lowest since 2003. [O/R]
Large-cap banks JPMorgan Chase and Co, Bank of America Corp, Citigroup Inc, Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley could feel the pinch, although energy loans account for a very small portion of their overall portfolios.
Following are some comments the banks made on their energy loans in their fourth-quarter earnings calls.
** Bank of America Corp
No.2 U.S. bank by assets
Energy exposure assumed at 2.4 percent of total loans
"Energy portfolio stress analysis shows $30 oil for 9 quarters would result in about $700 million of losses."
"As we continue to assess and react to future changes in the energy sector, we could see lumpiness that could potentially drive provision expense over $900 million."
** Citigroup Inc
No.4 U.S. bank by assets
Energy exposure assumed at 3.3 percent of total loans
"If oil were $25 for sustained period instead of $30, estimated $600 million cost of credit in first half of 2016 could double."
** Goldman Sachs Group Inc
No.5 U.S. bank by assets
Energy exposure assumed at 2.1 percent of total loans
"From our perspective we feel well-positioned (in terms of energy exposure)."
"While we're very focused about it, and are certainly not being complacent about it, we feel pretty front-footed. Even on a relative basis, we have smaller exposures."
** JPMorgan Chase & Co
No.1 U.S. bank by assets
Energy exposure assumed at 1.6 percent of total loans
"If oil reaches $30 a barrel - and here we are - and stayed there for, call it, 18 months, you could expect to see (JPMorgan's) reserve builds of up to $750 million."
"Oil folks have been surprisingly resilient. And remember, these are asset-backed loans, so a bankruptcy doesn't necessarily mean your loan is bad."
** Morgan Stanley
No.6 U.S. bank by assets
Energy exposure assumed at 5 percent of total loans
"We've seen an increase in negative marks within corporate loan book, focus is around energy."
** Wells Fargo & Co
No.3 U.S. bank by assets
Energy exposure assumed at 1.9 percent of total loans
"We're sensitizing our portfolio based on a continuation of very, very, very low oil prices ... in addition to scenarios that include an upward sloping curve, and we're comfortable with the amount of coverage that we have today."
"At current price levels, we would expect to have a higher oil and gas losses in 2016."
* Energy exposures based on Barclays and Goldman Sachs calculations, which used either third- or fourth-quarter results
Source: Barclays, Goldman Sachs, CNBC, bank earnings transcripts, Thomson Reuters data
(Reporting by Sruthi Shankar and Richa Naidu in Bengaluru; Editing by Sriraj Kalluvila)