When big banks announce earnings (which started yesterday) the spotlight's on the $147B in unfunded loans that banks have promised to energy firms—something most investors didn’t know much about until recently.
Many banks hadn’t disclosed these loans, which haven’t been tapped yet by energy companies, but are beginning to do so following this year’s oil slump.
“Let’s not sugarcoat it. This is not necessarily a loan a bank wants to make at this point,” Glenn Schorr, a bank analyst at Evercore ISI, tells the Wall Street Journal.
The four largest US banks—JP Morgan, Bank of America, Citigroup and Wells Fargo—pledged the majority of the $147B, which was disclosed by 10 of the US's largest banks.
The loans were mostly promised before the steep decline in oil prices, and will now prove a headache for banks, despite oil’s slight rebound to $42.17/barrel.
“With oil at $60, it’s not that big of a deal. With oil at $40, it becomes more of a source of concern,” Barclays analyst Jason Goldberg said of the unfunded loans. [WSJ]
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