With more than $5 billion in credits outstanding, the oil and gas business remains an achilles heel of UBS. Switzerland's biggest bank expects significant losses because of defaulting companies, with half of all loans directly affected by the low oil price.
UBS had credit losses of only 3 million francs in the first three months of the year, the company said today. In the fourth quarter of 2015, the losses had amounted to 59 million as several energy companies found it hard to serve their credits because of the low oil price.
Since then, the barrel has appreciated to about $46 from $37 at the start of the year, making life easier for the industry.
Exposure to North America
UBS had $5.5 billion in loans outstanding to companies in the oil and gas industry at the end of March, mainly in North America. That figure was $600 million lower than at the end of 2015. Half of those outstanding loans are directly affected by the level of the oil price (see diagram).
The concentration on business in North America might yet prove an added difficulty for UBS. The companies active in the industry in that region mainly invest in the costly fracking-business, which is particularly heavily exposed to a decline in the price of crude oil.
Depending on Price of Crude
Those companies need an oil price of about $50 to reach profitability – yet most analysts expect the price to remain within a range of $35 to $50 dollars through the end of 2017.
The UBS experts estimate the price of crude to average about $25 through the end of 2017, an even much more pessimistic outlook. Based on this assumption, the bank expects to take credit losses of 100 million francs.
