Oil & Gas Loan Exposure By Banks - Should We Worry?

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Includes: BAC, C, GS, JPM, WFC
by: Seattle Contributor

Summary

The top five banks have over $100 Billion in outstanding oil & gas loans.

No write off guidance has been provided prior to year end 2015 results being released.

Another $80 billion + of loans is still not utilized.

We have all seen the carnage on Wall Street recently. The two most common reasons provided are the weakness in Global market growth rates (primarily China) and the weakness in the energy industry. Energy stocks have seen relentless selling. Below are just a few selected stocks that demonstrate the carnage. Some are down 85% just this year, with Peabody experiencing a 99% drubbing in the past five years.

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Astute investors know that there are valid fundamental reasons for energy stocks to see market capitalization reductions. But when is low cheap enough to buy? Looking at the stocks in the energy sector made us wonder... so many energy stocks are priced as if they are going to go bankrupt and will likely default on their loans. So we started looking at the major banks to see what their balance sheet risk is from the energy sector. Surprisingly (ok maybe not that surprising) is the lack of how the top five banks disclose their energy/oil & gas loan exposure. JP Morgan (NYSE:JPM) did a far better job of disclosing their exposure than most. They went so far as to detail the value of their past due loans (they were the only bank in my article to do so). Wells Fargo (NYSE:WFC) on the other hand supplied minimal information and only stated what their loan portfolio total was; they did not disclose what their committed unused loan balances were. Bank of America (NYSE:BAC), Citibank (NYSE:C) & Goldman Sachs (NYSE:GS) were in the middle regarding their disclosures. I think the time is fast approaching when a governing body such as the SEC or FASB demands consistent standards by which the banks report these loans.

Below is a comparison of the information released by the top five banks regarding their energy loans. All information was extracted from the Company's latest SEC 2015 quarterly 10q filings as well as their 2013 and 2014 annual reports. The 2015 annual reports for all companies will be released in the coming month (February 2016). The comparisons will be interesting to say the least.

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The crux of the discussion I am trying to make is:

How much and how quickly should the major banks address the pending write offs in the energy industry? Fracking and shale produces have been decimated, but they are likely being financed to a large degree by smaller and more regional banks. So what can one expect from these (and other major) banks?

Conclusion

It would be hard to not expect announcements regarding write offs for poor or non performing loans. The last thing the markets need given their current fragile condition is for the major banks to either delay or ignore the fact that the right thing to do is to write off any questionable loans. The markets and our economy can not afford another fiasco similar to what the world saw in 2008 related to the real estate market.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.