Wall Street Banks Count Cost Of Oil Slump

US banks have taken a hit from the slump in the oil price as they count the cost of loans to the energy sector going bad.

Citigroup (NYSE: C - news) and Wells Fargo (Hanover: NWT.HA - news) both increased the reserves they have set aside in case of defaults from energy companies amid the slump which has seen Brent crude as well as the US benchmark WTI crude fall below $30 a barrel.

Brent crude is now trading at its lowest level since February 2004.

The slump has hit oil producers and refiners as well as affecting companies providing services and making equipment for the sector.

Now (NYSE: DNOW - news) the effect has also spread to Wall Street's big lenders.

Citigroup reported fourth-quarter earnings for 2015 of $3.3bn (£2.3bn), nearly ten times the level of the same period last year.

But shares were 6% lower after it said it had set aside $250m (£175m) in reserves for its energy portfolio, almost as much as the $280m (£196m) combined reserves for the previous three quarters of 2015.

Finance director John Gerspach said the higher reserves were "reflecting our view that oil prices are likely to remain low for a longer period of time".

He said the bank had also set aside another $150m (£105m) in reserves for "macro concerns" – unspecified potential losses that could stem from the negative impact of the oil rout on other sectors, or other wider economic problems.

Wells Fargo shares fell nearly 4% after it reported flat fourth-quarter earnings of $5.7bn (£4bn).

The bank said it had suffered higher oil and gas losses of $90m (£63m) in the quarter and warned of deeper losses this year.

Finance director John Shrewsberry said: "It (Other OTC: ITGL - news) takes time for losses to emerge. In the current price levels, we would expect to have higher oil and gas losses in 2016."

The earnings figures come a day after JP Morgan's quarterly results, which included $86m (£60m) in reserves after downgrades in energy and metal loans.

Demand for the commodities has been hit by the slowdown in emerging markets, led by China.