US Oil-belt Banks Rally Despite Crude Crash

Investors fretting about the impact of low crude prices on U.S. oil belt banks may have overdone the angst.

 

After posting relatively weak earnings reports for the fourth quarter of 2015, most banks based in Texas and Oklahoma have seen their shares rally. Some have gained up to 18 percent as fears of defaults crashing banks proved unwarranted, and some stocks may have further to rise if oil prices recover.

 

Shares of Allegiance Bancshares and Prosperity Bancshares, both based in Houston, have surged more than 16 percent since they posted results. In statements accompanying the reports, the chief executives of both companies discounted the impact of the energy selloff and highlighted Texas' growth potential.

 

In the weeks leading up to their earnings reports, banks in Texas and Oklahoma were the target of short sellers who saw the continuing decline in oil prices hurting lenders.

 

But many of the regional banks already were selling at fire sale prices, and may have been bolstered by an eight-day rebound in oil prices and short sellers seeking to buy shares and close out their positions.

 

Furthermore, for bankers used to the boom and bust cycles of the oil patch, this is not their first rodeo.

 

Even the president of the Dallas Federal Reserve Bank, Robert Kaplan, brushed off the worry, noting that these banks have been more careful about lending to leveraged companies.

 

"I'd say the banks in our sector are, overall, handling this - given the level of stress, which is high - they are handling this reasonably well," he said in an interview with Reuters.

 

Of 16 banks domiciled in either Texas or Oklahoma with market capitalizations between $100 million and $10 billion, 14 have posted quarterly earnings, with 10 performing worse than analysts had expected, and many reporting an increase in their loan loss provisions.

 

But through Monday's close, only four of those stocks have seen a decline since their results, led by losses of over 6 percent in both Texas Capital Bancshares and Comerica .

 

Should oil resume last week's rally, regional banks could be poised for further gains as they have gotten extremely cheap, with the median share price of the 16 banks at 11.4 times per share earnings expected over the next 12 months, versus 14.9 for the broad S&P 500.


(By Chuck Mikolajczak; Additional reporting by Jonathan Spicer; Editing by Andrew Hay)