Wells Fargo & Co’s (WFC.N) quarterly profit fell 7 percent as the No. 3 U.S. bank by assets set aside more than $ 1 billion to cover bad loans, saying its energy portfolio remained under “significant stress.”
Shares of Wells Fargo, which has said that nearly 2 percent of its loans are to the energy industry, fell 0.5 percent to $ 48.80 in afternoon trading on Thursday.
Income from all three businesses declined, with its largest business – community banking – reporting a 7 percent fall in the first quarter ended March 31.
“The increases in losses and nonperforming loans in the first quarter were primarily due to continued challenges” in the oil and gas portfolio, Chief Risk Officer Mike Loughlin said in a statement.
Oil prices have dropped by two-thirds since 2014, gutting the global energy markets and driving a string of bankruptcies as debt-laden drillers default on their loans.
About a third of listed oil and gas-related companies, with more than $ 150 billion in debt, are at high risk of bankruptcy this year, auditing and consulting firm Deloitte has said.
This week alone, Peabody Energy Corp BTU.N, the biggest U.S. coal miner, and Energy XXI Ltd (EXXI.O), a major oil and gas producer in Louisiana, Texas and the Gulf of Mexico, filed for bankruptcy.
Commercial and industrial loans, including those to oil and gas firms, rose 7 percent from the fourth quarter to $ 321.55 billion. Non-interest costs rose 4 percent as the bank shelled out more for employee benefits and compensation.
Wells Fargo’s mortgage banking revenue rose 3.3 percent to $ 1.6 billion. Although Wells is the largest U.S. mortgage lender by assets, JPMorgan Chase & Co (JPM.N) topped Wells in that category during the quarter, at $ 1.9 billion.
Wells Fargo was among the five big banks failed by U.S. regulators on Wednesday on their plans for a bankruptcy that would not rely on taxpayer money.
The net income applicable to common shareholders fell to $ 5.09 billion, or 99 cents per share, but total revenue rose 4.3 percent to $ 22.2 billion.
The results, however, beat Wall Street’s lowered expectations of a profit of 97 cents per share and revenue of $ 21.6 billion, according to Thomson Reuters I/B/E/S.
Provisions for bad loans surged nearly 80 percent to $ 1.09 billion.
Wells Fargo shares had fallen 11 percent in the first quarter.
BREAKINGVIEWS-Wells Fargo at risk of losing its edge
Graphic: Stock performance of large cap U.S. banks in Q1 (bit.ly/1TPu3rg)
Graphic: Loan performance of large cap U.S. banks (bit.ly/1MuuaHs)
(Reporting by Sruthi Shankar and Richa Naidu in Bengaluru; Editing by Kirti Pandey, Bernard Orr)