European banks face prolonged energy exposure

Drilling in the Bakken shale formation outside Watford City, N.D.
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European banks appear to face greater long-term exposure to problems in the energy sector compared to U.S. banks, many of which have already shored up capital reserves for half of their energy debt portfolio.

Numerous European banks have not yet seen their borrowers draw down much of the credit that has been allotted for them, or, even more perplexing to analysts and investors, aren't saying what their exposure to commodity-sensitive credit is, or what has already been committed.

At the Credit Suisse Financial Services Conference this week in Florida, several bank executives highlighted the total exposure of their balance sheets to energy debt, but also explained what percentage of that exposure is made up of outstanding paper.

Wells Fargo CFO John Shrewsberry highlighted the bank's $42 billion in total oil and gas credit in his presentation at the conference; 41 percent ($17.4 billion) is already outstanding. The lender already has prepared for losses in outstanding paper by setting aside $1.2 billion to offset credit losses.

The difference between Wells' energy exposure and many of its competitors is that much of the California-based bank's paper is non-investment grade. But the finance chief doesn't sound like he's sweating it.

"This is not new for Wells Fargo," Shrewsberry said at the event, and he noted "most of these loans are senior secured credit facilities."