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Q1'16 energy exposure at US banks and thrifts


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Q1'16 energy exposure at US banks and thrifts

Even with the recent surge in oil and gas prices, investorsremain concerned about energy and energy-related exposure in the bankingindustry. Many companies reported an increase in their outstanding exposure inthe first quarter.

According to ananalysis by S&P Global Market Intelligence, 11 companies that reportedfirst-quarter earnings as of April 20 disclosed energy and energy-related loansof greater than $200 million. The data was collected on an as-reported basisfrom earnings releases, earnings conference call transcripts, 10-K filings,10-Q filings and investor presentations. The list was compiled on abest-efforts basis.

CitigroupInc. disclosed that it held $23.7 billion of outstanding energy andenergy-related loans at March 31, more than any other public bank or thriftbased in the U.S. Citi's funded exposure, 40% of which was non-investmentgrade, increased 7.2% in the first quarter relative to the end of 2015. Itsportfolio included $7.6 billion in exploration and production and $3.6 billionin service and drilling. The bank's total energy exposure (including loancommitments) of $59.3 billion (29% non-investment grade) also topped theindustry, although the amount fell by more than $1 billion in the first quarter.

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Next up in terms of outstanding loans is , with a March 31balance of $21.8 billion, representing a 2.6% linked-quarter change. Utilizedexposure in the refining and marketing energy bucket was up to $6.3 billionfrom $5.6 billion, while the oil field services category declined to $2.9billion from $3.4 billion. Energy reserves more than doubled sequentially, andenergy net charge-offs were up $17 million to $102 million.

At March 31, Wells Fargo & Co.'s outstanding oil and gas exposurewas $17.8 billion (around 93% non-investment grade) and its total exposure(including commitments) was $40.7 billion (around 78% non-investment grade).Like Citi, funded loans increased and total exposure declined during the firstquarter. Approximately half of the 2.7% quarter-over-quarter increase inoutstandings came from loans acquired from GE Capital. Nonaccrual energy loanswere up to $1.9 billion, which was around 125% higher than the amount at Dec.31, 2015. Additionally, net charge-offs in the oil and gas space increased $87million to $204 million.

For JPMorganChase & Co., drawn credit exposure in the oil and gas andnatural gas pipelines sectors increased 7.9% during the first quarter to $15.3billion, 70% of which was non-investment grade. The total energy exposure(including commitments and derivatives) was up to $47.9 billion (49%non-investment grade) from $46.3 billion at year-end 2015. The bank built itsenergy reserves by $529 million, pushing the total to $1.3 billion;approximately 72% of the reserves were allocated to the funded credits.

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LegacyTexasFinancial Group Inc.'s outstanding energy exposure (includingreserve-based loans, midstream loans and oil field services loans) was $528.7million, essentially unchanged from the prior quarter. LegacyTexas stands out positively in thesector in terms of detailed disclosures about its portfolio. In thefirst-quarter investor presentation, the bank revealed that $276 million of itsoutstanding energy loans was backed by private equity investors. Additionally,the bank reported that a significant percentage of its energy exposure ishedged for the next three years — for 2016, 85% of the engineered proveddeveloping producing volume of the gas portfolio is hedged at a weightedaverage price of $3.36, while 47% of the oil production is hedged at an averageof $70.23.

To view previous articles on energy exposure, click on the following links:

Earnings conference call transcripts, earnings releases and investor presentations can be accessed under the News, Events and Filings section of a company's briefing book page.