- Lenders have set aside billions to cover soured energy loans
- Just two banks profitable under S&P's most adverse stress test
U.S. regional banks with large energy exposures including Comerica Inc. and Zions Bancorp could suffer higher losses than analysts predict if oil prices continue to fall, according to a Standard & Poor’s Ratings Services report.
Only two of the 10 regional banks stress-tested by the ratings firm remained profitable before paying out dividends under the most adverse scenario, which assumes energy commitments rise 25 percent from current levels, according to the report issued Thursday. The uncertainty surrounding the energy industry could mean banks’ losses are significantly greater than even the most adverse scenario predicts, said Stuart Plesser and Devi Aurora, the primary credit analysts for the report.
“Our outlooks for most of these banks remain negative, and given the unpredictability of energy prices, losses may be higher than we expect, even affecting loans outside of direct energy lending,” Plesser and Aurora said in the report. “U.S. regional banks are still in the early stages of losses.”
Oil prices have dropped 63 percent from their 2014 peak, ending the debt-fueled spree that pushed U.S. oil production to a 40-year high. Banks have set aside billions to cover bad energy loans and have said they will add to reserves if prices stay low. Earlier this year, S&P lowered its ratings on U.S. regional banks with “substantial” energy exposures, including Cullen/Frost Bankers Inc., and changed its outlook to negative for BBVA Compass Bancshares.
A Comerica spokesman declined to comment on Thursday’s report.
“In order for Zions Bancorp to experience a loss in a given year, it would need to charge off approximately one-quarter of its energy loans,” said James Abbott, a spokesman for the company. “That degree of losses is unprecedented.”
Other banks in Thursday’s analysis included Texas Capital Bancshares Inc., Cullen/Frost, BOK Financial Corp., Hancock Holding Co., MUFG Americas Holding Corp. and BBVA Compass. Regions Financial Corp. and Associated Banc-Corp were the only lenders to remain profitable under the most adverse scenario. All of the banks had more than 5 percent of their total loans to energy firms.