To say it nicely, the oil-and-gas industry has hit a bit of a rough patch. Unfortunately, it does not appear that any sustainable level of rebound will take place in the immediate future.
In response to these concerns, Wells Fargo has set aside $1.2 billion to prepare for any potential losses due to the oil-and-gas sectors. They warned that trouble is brewing, and this course of action shows that they are not willing to take any chances.
The San Francisco-based bank stated in a regulatory filing that 10 percent of its loan loss reserves are tied to the oil-and-gas industry, despite the fact that these loans only account for 2 percent of its overall loan portfolio.
Understandably so, many investors are now wondering whether Wells Fargo will get burned badly by the oil-and-gas sector. The Wall Street Journal pointed out earlier this week that Wells Fargo regulatory filing was the first time the bank has offered details on its potential oil-and-gas credit losses.
John Stumpf, Chairman and CEO of Wells Fargo, had even more bad news on the energy front.
“If oil prices remain low for a prolonged period of time, there could be additional performance deterioration in our oil and gas portfolio resulting in higher criticized assets, nonperforming loans, allowance levels and ultimately credit losses,” Wells Fargo stated in the filing.
But thats not all, the problem could actually be even worse, affecting even more people in the industry. Wells Fargo, which has major operations in oil patch states, such as Texas and North Dakota, said that the loans for those working in the energy sector may also experience some credit challenges.
Wells Fargo’s next earnings call is scheduled for April 14. We can be sure to expect that the bank’s exposure to the energy sector will be a hot topic.