Wells Fargo Has Biggest Energy Exposure Among Large US Banks

By Christopher Ryu,
Money and Investing Writer

Amid apprehension that banks may have to cover bad loans in the energy sector by setting aside more money, a report by Raymond James (NYSE: RJF) entails that Wells Fargo & Co. (NYSE: WFC) actually have the largest loan exposure to energy companies comparatively to other major U.S. lenders.

Bank of America Corp.(NYSE: BAC), Citigroup Inc. (NYSE: C), Comerica Inc. (NYSE: CMA) and BB&T Corp. (NYSE: BBT), follow behind Wells Fargo, whose public debt is trading 35 percent below par, according to the brokerage.

Compared to other companies whose debt trade at 70-75 percent below par, Wells Fargo could be seen distressed.

Based on U.S. accounting rules, banks must set aside money to cover loans that show signs of deterioration.

The energy sector is growing rampant as OPEC keeps pumping oil.

Brent Crude, which is used worldwide as a benchmark price for the purchase of oil, went from peaking last year in June to dropping about 59 percent.

Thursday, Sept. 17, it was marginally up at $48.04/ barrel.

Although Wells Fargo has the largest exposure in the energy sector, the energy accounts only make up two percent of the company’s loan portfolio.

According to the Raymond James report, MidSouth Bancorp Inc. (NYSE: MSL) has a portfolio that is made up of 20 percent energy loans (MidSouth Bancorp Inc. leads the list of largest portfolio dedicated to energy).

Raymond James said “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.”

Oil prices look to remain low and the energy sector is looking at more of a slowdown, but only time will tell and it is important to remain cautious but not to jump the gun.

A version of this article appeared in the Tuesday, October 6th print edition.

Contact Christopher at
christopher.ryu@student.shu.edu

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