Link to Fitch Ratings' Report: U.S. Banking Quarterly Comment: 4Q15
The 4Q15 results for US banks showed generally lower net income affected
by market volatility, interest rate uncertainty and pressures in oil &
gas (O&G), according to Fitch Ratings. Incremental spread income growth,
still very benign credit costs and moderation in large
litigation-related builds (excluding Goldman Sachs) offset these trends.
Results for the largest 17 U.S. banks were generally lower on a
linked-quarter basis, with 11 reporting decreased net income
sequentially. Given the prolonged low interest rate environment and
relatively weak economic trends, absolute earnings remain relatively
lackluster, with a return on assets, on average, of less than 100 bps,
well below pre-financial crisis levels.
Following the precipitous drop in oil prices last year that has
accelerated into the new year, many of the banks reported further loan
loss reserve builds. Exposure to oilfield services companies and
exploration and production companies were cited as higher risk segments
for the banks. While direct exposure to O&G for the large banks
(included in our quarterly comment) is fairly modest, the related
provisioning still affected reported results, which have benefited
greatly from reserve releases over the past few years.
Fitch now expects oil prices to increase to $45 on average in 2016 and
$55 in 2017, which marks a large improvement from current prices of
around $30 a barrel. We expect some price recovery in the second half of
this year as the market nears balance.
Regulatory uncertainty regarding oil prices remains for the banking
sector. The next Shared National Credit review, which assesses risk in
the largest and most complex credits shared by multiple financial
institutions, will likely again focus on O&G exposure as well as
leveraged lending. The review will begin on Feb. 1 utilizing data as of
Sept. 30, 2015. The results will likely prompt further downgrades in
banks' energy portfolios since the Spring 2016 redeterminations on
borrowing bases will likely prove more challenging than the recently
completed Fall 2015 process.
Future challenges include hedging protection is rolling off at O&G
companies, capital markets availability is diminishing and their ability
to cut capex further may be constrained. How the regulators will layer
in the recent price declines is unclear, as well as how this will factor
into the annual regulatory stress testing.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
U.S. Banking Quarterly Comment: 1Q15 (Low Rate Environment Takes its
Toll on Regionals)
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Copyright Business Wire 2016
Source: Business Wire
(January 28, 2016 - 10:57 AM EST)
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