Comerica in Dallas is warning that its loan-loss provision this quarter will be larger than previously estimated because of falling oil prices.
The $72 billion-asset Comerica expects to add $75 million to $125 million to its loan-loss reserves primarily in the first quarter as a result of the ongoing energy slump, the company said in its annual report filed on Friday.
Previously Comerica had said its reserves would increase within that same range over the full year, John Pancari, an analyst at Evercore ISI, wrote in a research note Monday. The new filing means Comerica's loan portfolio will feel the impact of low energy prices much sooner than the company had suggested during its Jan. 19 conference call to discuss fourth-quarter earnings, Pancari wrote.
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Bankers in the Bakken Shale region of Montana and North Dakota are keeping an eye on exposure to hotels, apartments and retail space as economic slowdowns occur in energy-producing markets. Bankers in the Marcellus Shale region are also on alert, though there might be less exposure since that region had not yet had a development boom.
February 29 - Arizona
Comerica in Dallas retroactively cut its fourth-quarter profit by $14 million after discovering that a single borrower an Arizona company the bank did not identify was unlikely to repay its loan.
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Management has also been allocating more resources to other markets to add loans and boost fee income in businesses such as card services and wealth management. Such moves are designed to offset fallout from an energy book that shrunk by 14% last year.
January 19
"While not a surprise, this is further indication that credit pressures are developing rather quickly given prior expectations," Pancari wrote in his report.
Comerica had $3.1 billion in energy loans at Dec. 31, about 6% of its total loan portfolio. It has not given an exact dollar figure for its overall reserves nor its energy reserves at the end of last quarter. But it has said that it set aside more than 4% of the value of its $3.1 billion in energy loans and $625 million in loans to other businesses sensitive to fluctuation in oil prices; that calculation would equal more than $149 million.
An increase in reserves between $75 million and $125 million would cut Comerica's quarterly earnings between 27 cents and 45 cents per share, Pancari said. It reported a
Pancari also suggested that other banks with large exposure to the energy sector could adjust their loan-loss reserve estimates in the coming weeks. PNC Financial Services Group in Pittsburgh said in its annual report, filed Monday, that its first-quarter loan-loss provision could be on the high range of its $75 million to $125 million estimate. PNC has a $2.6 billion energy-loan portfolio, equal to about 1% of total loans.
West Texas intermediate crude oil traded at $33.76 per barrel in early afternoon trading Monday, up 2.99% from Friday.
