When big banks announce earnings starting on Wednesday, the spotlight will be on massive energy loans that most investors didn’t know much about until recently, the Wall Street Journal reported today. These unfunded loans have been promised to energy companies that haven’t yet tapped the money. Many banks historically haven’t disclosed these loans but have begun to recently following the extended slide in oil and gas prices. In the first quarter, a handful of energy borrowers announced more than $3 billion of drawdowns against these types of loans. Those commitments are expected to trickle down to bank earnings and saddle firms with more energy exposure at a time they are trying to pare it back. Banks in recent months have set aside billions of dollars to cover potential losses tied to energy companies, a trend likely to continue as more loans go bad. Fitch Ratings Inc. is expected to release a report this week saying that nearly 60 percent of unrated and below-investment-grade energy companies are likely to have loans labeled as “classified,” or in danger of default under regulatory guidelines. “It’s grim,” said Sharon Bonelli, senior director of leveraged finance at Fitch. Read more. (Subscription required.)
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