Wells Fargo Examines Its Energy Loans After Oil Price Drop

Wells Fargo & Co, one of the biggest lenders to U.S. energy companies, is reviewing each of its loans to the sector in the wake of oil prices tumbling 60 percent since last summer, executives said Wednesday.

 

The bank did not think its energy loan portfolio was at risk enough to justify setting aside any money in the fourth quarter to cover possible defaults, Wells Fargo (WFCNO) Chief Financial Officer John Shrewsberry told analysts on a Wednesday conference call, adding that energy represented only 2 percent of the banks outstanding loans.

 

He said he expected future loan demand in the industry would "certainly be down."

 

Energy clients are taking "the appropriate evasive actions," including preserving cash, cutting costs and trimming debt in light of the plunging oil prices, Shrewsberry said.

 

"We're ... going customer by customer and working through each situation to figure out what this drop means to them," Shrewsberry said.

 

In recent years, the San Francisco-based bank has been one of the beneficiaries of U.S. shale oil and gas discoveries and the fracking boom. It has 500 relationships with energy companies that range from lending money to underwriting debt to taking firms public. The bank has invested around $500 million through funds and direct stakes, executives said at the bank's May 2014 investor day.

 

Wells Fargo's revenue from these clients has grown steadily to $1.04 billion in 2013 from $690 million in 2011.

 

Chief Executive Officer John Stumpf told analysts to focus on the positive aspects of the drop in oil prices like more discretionary income for U.S. consumers.

 

Lower energy prices also could benefit Wells Fargo's merchant banking group as it looks to take part in recapitalizing oil and gas companies that run into trouble or acquiring energy assets from firms that need to sell them quickly, Shrewsberry said in a separate interview with Reuters.

 

"That could be an interesting opportunity as things go forward," Shrewsberry said.

 

Wells Fargo, the fourth largest U.S. bank by assets, reported a slight increase in quarterly profit earlier Wednesday as it earned more from credit cards and corporate loans.