Problems in the energy sector are starting to show up in bank earnings, providing a bit more clarity on how much of a hit financial institutions will take from faltering commodity prices.
Still, it’s tough to get a firm read on the impact of energy, since some of the information is disjointed or lumped in with other parts of the business.
With all six of the biggest banks reporting earnings, and some of the smaller banks reporting as well, here’s what we know about who is getting hit and how:
- Goldman Sachs Group Inc. said Tuesday that it earned $87 million in its Investing & Lending Division, a 95% drop from the same quarter a year earlier. On an earnings call, CFO Harvey Schwartz said that the majority of the poor performance on the lending side was attributable to energy-related write-downs.
- Some of the smaller banks have cited energy as a culprit of poor performance. Comerica Inc. said Tuesday that profits were hurt by energy loans that are going bad, with more than half of its energy loans at higher risk of default. PNC Financial Services Group Inc. said it stashed $152 million for loan losses in the first three months of the year, up from $74 million in the prior quarter
- Last week, J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. said they all built up reserves. Morgan Stanley indicated the same on Monday. J.P. Morgan increased its wholesale reserves by $529 million because of oil and gas.
- Bank of America Corp. still released $71 million of reserves, but that was the smallest in six years.
Though oil prices have rebounded from their lows, energy companies are likely to continue causing headaches for banks. Ten of the largest U.S. lenders have $147 billion in unfunded loans.
“Some of these [energy company] capital structures just need to be restructured,” said John Shrewsberry, chief financial officer of Wells Fargo & Co, on the bank’s earnings call last week. “That will take some time, and my assumption is that we’re going to be talking about this all year.”
Read the entire Wall Street Journal article here.