The oil crash is catching up with US big banks’ bottom lines

Crude oil pic

The impact of plummeting oil prices has shown up in the financial picture of U.S. banks, whose losses from loans increased for the first time in five and half years, according to new government data.

U.S. bank earnings jumped 11.9 percent in the final three months of 2015 compared with the previous year as revenue rose. Legal expenses declined as some big banks wound down legal settlements that arose from the financial crisis.

Falling oil prices over the past year and a half — now hovering around $30 a barrel for crude oil from a $100 high in mid-2014 — have sliced into the profits of energy companies and put projects on hold. Big Wall Street banks have made loans to energy companies to finance oil production in Texas, North Dakota and elsewhere. As cash flow from oil sales has trickled, some companies are straining to repay their loans.

The fallout has come fast. The six largest U.S. banks — JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley, Wells Fargo and Bank of America — have tens of billions of dollars of exposure to risky energy loans that won’t all be paid back. The value of those loans will have to be written down even further, and bank profits are going to take a hit, the credit agency Moody’s has said.

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