The oil crash is hammering Warren Buffett’s favourite bank

Wells Fargo, the most valuable bank in the US by market cap, is getting crushed by the oil crash.

On Thursday, the San Francisco-based bank announced earnings that beat expectations.

But underneath the positive headline number, the firm said its oil and gas portfolio remained under “significant stress” owing to the decline in oil prices and the deteriorated financial condition of its borrowers.

Wells’ chief risk officer Mike Loughlin said in the company’s release that, “While substantially all of the loan portfolio continues to perform well, the oil and gas portfolio remains under significant stress due to low prices and excess leverage in this industry.”

Now, news out of Wells that its oil and gas portfolio is under pressure isn’t exactly unexpected as Bloomberg News reported earlier this week the company increased its lending exposure to the sector over the two years ending with the spring of 2014, right before oil prices began their roughly 70% decline that continues today.

Fredgraph (7)

Loughlin added: “The increases in losses and nonperforming loans in the first quarter were primarily due to continued challenges in this portfolio. The allowance for credit losses in the first quarter reflected a reserve build of $200 million as higher commercial reserves reflecting continued deterioration within the oil and gas portfolio were partially offset by continued credit quality improvements in the residential real estate portfolio. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions.”

As of March 31, the company’s oil and gas loans outstanding totaled $17.8 billion with total exposure to the sector of $40.7 billion.

In the first quarter, Wells earned $0.99 per share in the quarter, topping expectations for earnings of $0.97.

Warren Buffett’s Berkshire Hathaway owns 500 million shares, or about 9.8% of the bank. Wells is Buffett’s largest single-stock holding by market value.

In pre-market trade on Thursday, shares of Wells were down about 0.6%.

Here’s a graphic from the company breaking down its portfolio.

Wells oil

NOW WATCH: EX-UNDERCOVER DEA AGENT: What I did when drug dealers asked me to try the product