NEW YORK (AP) — The nation's six largest banks have hit an oil slick.
They have tens of billions of dollars of exposure to risky energy loans that won't all be paid back, because low oil prices have sapped the profits of oil companies. The value of those loans will have to be written down even further, and bank profits are going to take a hit, the credit agency Moody's said in a report issued Friday.
The loans on the balance sheets of the biggest banks on Wall Street — JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley, Wells Fargo and Bank of America — represent only a small percentage of these institutions' overall loans, but the losses will be noticeable.
"While the banks' exposures are not outsized, these loans have already resulted in banks taking loan-loss provisions, and we expect that if oil prices remain low for longer, these firms are going to take additional losses," said David Fanger, senior vice president at Moody's, who wrote the report.
Oil prices have fallen by more than 70 percent over the course of the past 19 months, to a recent $31 a barrel. Energy analysts expect that prices will be extremely slow to rise again because there is an enormous global oversupply of crude.
The troubled energy loans, while sizable, do not pose nearly the same threat to the banks or the financial system that mortgage loans did when the housing market collapsed, contributing to the financial crisis.
Wells Fargo is more exposed to these risky energy loans than the other banks. Moody's estimates that Wells Fargo's total energy exposure is heavily weighted toward loans to oil exploration and production companies, as well as oil field services companies, which have been hardest hit by the decline in oil prices. Moody's estimates that nearly 40 percent of Wells Fargo's energy loan portfolio is at what Moody's considers to be a heightened risk of facing delinquent payments.