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 Wells Fargo & Co <WFC.N> raised provisions against soured assets by
more than 70 percent, nearly half of them for oil and gas loans, to
ensure it is covered should prices stay at current levels for the
rest of the year. The move helped drive a dip in fourth-quarter net
profit.
The San Francisco-based bank, a major lender to the U.S. energy
industry, said it and other banks were talking to borrowers,
including production companies and oil services firms, about how to
navigate the crunch.
“We are all being appropriately tough to make sure that we protect
the interests of the bank," John Shrewsbury, the bank's chief
financial officer, told analysts. "We are working with each customer
to help them to work through this. It does not do us any good to
accelerate an issue or to end up as the holder of a number of oil
leases."
Citigroup Inc <C.N> set aside $250 million to cover losses related
to its energy portfolio but said if the price of oil were to drop to
$25 for a sustained period, it would have to double the amount of
overall provisions it has pencilled in at $600 million for the first
half of this year.
The oil price rout has dominated the start of U.S. bank earnings
season despite energy loans accounting for 3.4 percent or less of
the major banks' portfolios, according to analysts at Barclays bank.
SUBDUED REVENUE GROWTH
Bank bosses sought to reassure investors that the pain was so far
restricted to the energy sector and there was still demand for car
loans, mortgages and commercial real estate and that customers are
making loan payments as regularly as ever.
JP Morgan Chase & Co <JPM.N> Chief Executive Jamie Dimon said he did
not expect losses on the bank's oil and gas loans to accelerate with
the pace and severity that the decline in oil market prices might
suggest. [L2N14Y1NW]
But the turmoil has pared back market expectations on how often the
U.S. Federal Reserve will hike rates this year, which would lift
bank profits. The December Fed funds futures contract <FFZ6> was
pricing in just one increase on Friday.
Revenue growth remains subdued for U.S. banks. The major banks that
have so far turned a net profit - Citigroup and JP Morgan - have
done so through cost cutting and lower legal bills as the number of
crisis-era misconduct cases abates.
Goldman Sachs Group Inc <GS.N>, however, delivered a blast from the
past this week when it said it had reached a $5 billion agreement
with the U.S. Department of Justice and other authorities to settle
claims it misled mortgage bond investors during the crisis.
Goldman said the deal would cut fourth-quarter earnings by about
$1.5 billion. Analysts have now tapered their expectations for
Goldman's net income per share to $3.30 from $3.71 previously
according to Thomson Reuters I/B/E/S estimates.
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Goldman is expected to report fourth-quarter results next Wednesday.
GAINS AND EXPENSES
Citigroup reported its biggest full-year earnings in nearly a decade
on Friday as its strategy of pulling back from countries and
businesses yielded returns.
But the bank's shares slid as much as 7.8 percent on Friday as
investors fretted about its exposure to emerging markets, including
Latin America and Asia, and puzzled about how to separate its core
performance given an array of unusual gains and expenses.
“It is almost impossible to specify what the ‘true’ operating
results were,” Oppenheimer analyst Chris Kotowski, who rates the
stock “outperform,” said in an initial note to clients.
Citi's pullback contrasts with Wells Fargo's strategy of buying
assets and building deposits to drive growth. Wells overtook Citi as
the third-largest U.S. bank by assets with its results.
Wells' shares were down nearly 4 percent on Friday afternoon.
The outlook for trading desks will take center stage next week when
Morgan Stanley <MS.N> and Bank of America <BAC.N> report results, in
addition to Goldman Sachs.
Quarterly trading revenue from stock trading, which Citi is
emphasizing, rose 29 percent in the fourth quarter from a year ago
but was down 39 percent from the third quarter. Revenue from fixed
income trading rose 7 percent in the fourth quarter from a year ago
and fell 14 percent from the third quarter.
(Reporting by Sweta Singh and Sruthi Shankar in Bengaluru and David
Henry and Dan Freed in New York; Writing by Carmel Crimmins; Editing
by Matthew Lewis)
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