Oil collapse drags on Citigroup, Wells Fargo earnings

Earnings from US banking giants Citigroup and Wells Fargo showed an increased drag from the oil rout that investors fear will worsen.

Both banks lifted their reserves in case of defaults from energy companies, a sign of how months of low oil prices have pinched clients in the petroleum business.

Highlighting the threat, oil prices sank again on Friday to well below $30 a barrel for the US benchmark WTI crude, sending shares of oil producers, service companies and refiners sinking.

Citigroup reported fourth-quarter 2015 earnings of $3.3 billion, nearly 10 times the level in the year-ago period.

Yet shares fell 7.0 percent in midday trade after it said it set aside $250 million in reserves for the energy portfolio, nearly equal to the $280 million the bank's combined reserves for the three quarters of 2015.

The higher reserves "are reflecting our view that oil prices are likely to remain low for a longer period of time," Citigroup chief financial officer John Gerspach said in a conference call analysts.

Gerspach said the bank had set aside about another $150 million in reserves for "macro concerns," unspecified potential losses that could stem from the negative impact of he oil rout on other sectors, or from other macro problems.

"We haven't seen any real knock-on effects as yet broadly across the rest of the portfolio," he said. "There may be knock-on effects that show up later."

In October, Gerspach said Citigroup had about $60 billion in overall energy exposure with about two-thirds of that investment-grade risk.