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DBRS on Q1 earnings: Sound despite oil and gas

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DBRS on Q1 earnings: Sound despite oil and gas

Bank earnings in the first quarter of 2016 were strongdespite oil and gas deterioration and volatility in the market, DBRS analystssaid.

Total revenue increased modestly, growing almost 5% year overyear at the median bank, according to a May 2 report from the rating agency.

"The median bank's net income was down modestlysequentially, mostly driven by higher loan-loss provisioning needs atbanks," Michael Driscoll, senior vice president and head of North Americanfinancial institutions, said on a May 2 call.

Despite oil prices increasing from earlier in the year byabout 50% to around $45 a barrel, new guidance from regulators and the sharednational credit review has caused many banks with energy exposures to increasetheir loan provisions in the first quarter, the report noted. The agencyexpects deterioration of energy assets to increase in the third and fourthquarters.

Economic activity is expected to pick up during the rest ofthe year, despite low economic growth in the first quarter, Driscoll said.

"While the 0.5% U.S. first quarter GDP growth is hardlyanything to get excited about, we expect the pace of economic activity to pickup steam from the prior years," he said.

Increased M&A activity is also expected this year,although some banks may prefer stock repurchases, analysts said on the call.