As Oil Prices Fall, Banks Serving the Energy Industry Brace for a Jolt
Banks have been lending hand over fist to companies in the nation’s energy industry, underwriting bonds, advising on mergers, even financing the building of homes for oil workers. All of this has provided a boon to banks that have been struggling to find more companies and consumers wanting to borrow.
Yet with the price of crude oil falling below levels sufficient for some energy companies to service their huge debts, strains are being felt and defaults are likely. While it may take some time for the crunch in the oil industry to translate into losses, one thing already seems clear: The energy banking boom is over.
The Price of Crude Oil Over the Last 9 Months
“At the least, you are talking about a slowdown in loan growth for the banks in the energy-producing states,” said Charles Peabody, a banking specialist at Portales Partners. “That, we feel pretty strongly about.”
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