Citigroup, Wells Fargo gird for loan losses as oil price dives

Fri Jan 15, 2016 3:36pm EST
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By Sweta Singh and Sruthi Shankar

(Reuters) - U.S. banks stockpiled their defenses against rising loan losses on Friday as oil prices dived below $30 a barrel and global equity markets fell sharply.

Wells Fargo & Co (WFC.N: Quote) raised provisions against soured assets by more than 70 percent, nearly half of them for oil and gas loans, to ensure it is covered should prices stay at current levels for the rest of the year. The move helped drive a dip in fourth-quarter net profit.

The San Francisco-based bank, a major lender to the U.S. energy industry, said it and other banks were talking to borrowers, including production companies and oil services firms, about how to navigate the crunch.

“We are all being appropriately tough to make sure that we protect the interests of the bank," John Shrewsbury, the bank's chief financial officer, told analysts. "We are working with each customer to help them to work through this. It does not do us any good to accelerate an issue or to end up as the holder of a number of oil leases."

Citigroup Inc (C.N: Quote) set aside $250 million to cover losses related to its energy portfolio but said if the price of oil were to drop to $25 for a sustained period, it would have to double the amount of overall provisions it has pencilled in at $600 million for the first half of this year.

The oil price rout has dominated the start of U.S. bank earnings season despite energy loans accounting for 3.4 percent or less of the major banks' portfolios, according to analysts at Barclays bank.


A Citigroup office is seen at Canary Wharf  in London, Britain May 19, 2015.  REUTERS/Suzanne Plunkett