The Warren Buffett favorite is the petrol-bank of America, with total exposure to the oil and gas industry of $43.5 billion, more than double that of JP Morgan’s loan portfolio. Moreover, their ‘criticized’ loans, which are defined as being abhorrently abysmal to essentially worthless, skyrocketed to $30 billion–up from $18.5 bill.
The balance of Wells Fargo’s $290 billion loan portfolio was rated ‘pass’…for now.
Over the past few weeks, banks have redetermined the credit lines of hundreds, if not thousands, of energy companies. It’s worth noting that many of these credit lines, extended by the likes of WFC and JPM haven’t been tapped yet. The predominant part of maturities in the oil and gas space occurs after 2016, which means, essentially, the industry is rolling the dice–hoping for a better spot market to sell into.
As I’ve noted here on numerous occasions, the vast, overwhelming, majority of energy companies are producing crude oil at record rates, which is contributing to the seemingly endless glut of crude oil already in storage. It doesn’t take a rocket scientist to figure out that an industry in desperation, doing desperate things, isn’t exactly what the industry needs to balance out the supply/demand situation that was the cause of the price drop in the first place.
I am short XLE, but have been unwinding said position over the past week.
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I’m sure Charlie “one eye ” Munger is telling Wells Fargo how stupid they are.