(Reuters) - Wells Fargo & Co (WFC.N) has the largest exposure to loans to energy companies among major U.S. lenders, a report from Raymond James said, amid concerns that banks may have to set aside more money to cover bad loans to the industry.
The bank also topped the list with the biggest exposure to energy companies whose public debt was trading less than 35 percent of par, the brokerage said on Thursday.
Companies whose debt is trading 35 percent below par are generally seen as more distressed in comparison to those trading at 70-75 percent below par.
U.S. accounting rules require that banks set aside money to cover losses on loans after the loan shows visible signs of deterioration.
Oil has seen big price swings since the end of August on a mixed supply-demand outlook from the EIA, the International Energy Agency and producer group OPEC.
Brent crude LCOc1 was marginally up at $48.04 per barrel on Thursday. Prices are down about 59 percent since peaking in June last year.
Wells Fargo CFO John Shrewsberry said in July that he expected energy-related credit performance will remain weak.
Energy exposure accounts for just 2 percent of Wells Fargo’s loan portfolio.
By the same measure, MidSouth Bancorp Inc MSL.N topped the list with about 20 percent of its total loans to energy companies, according to the Raymond James report.
With oil prices expected to remain lower for longer and slowdown in capital markets activity and bankruptcies in the E&P space, the brokerage said it remained cautious near term.
“We continue to believe that even though the energy lenders have underperformed in sympathy with crude, it is still too early to buy the dip,” Raymond James said.
Reporting by Rachel Chitra; Editing by Sriraj Kalluvila