JPMorgan hit hard by energy loans

Loans: banks routed on oil and gas loans

JPMorgan Chase has signalled a rough first quarter with double-digit declines in investment banking revenues and a $500 million increase in provisions for expected losses on energy loans.

Plummeting oil prices, volatile markets, stubbornly low interest rates, pressure from regulators and a slowdown in China have combined to hurt banks worldwide over the past few months.

"There is no doubt that so far it has been a very tough quarter," Pinto said during a presentation at the bank's investor day in New York, according to Reuters.

Thousands of jobs have been cut in the US energy industry alone and roughly a third of oil producers, or 175 companies, are at high risk of slipping into bankruptcy this year, according to a study by Deloitte, increasing the risk that bank loans will not be repaid.

JPMorgan's move to raise its energy loan loss reserves by over 60% comes a month after the bank said oil companies were "surprisingly resilient", but a drop in the price of oil below $30 a barrel in January has made the situation worse.

Around half of the increase in reserves for oil and gas loans was concentrated on a couple of corporate clients, the bank said.

"There will be a meaningful number of these players who have no options. I think we have only begun to see the range of bankruptcies in oil and gas," said Doug Petno, the head of JPMorgan's commercial bank.

Under a "relatively severe" scenario, with oil prices at $25 a barrel for 18 months, the bank said it would have to set aside an additional $1.5 billion in reserves.

JPMorgan's oil and gas loan portfolio amounted to $42 billion, or less than 2% of total assets, as of the end of September, according to the bank's latest available data, Reuters reported.

JPMorgan's US rivals stockpiled their defenses against energy losses last month with Wells Fargo raising provisions against soured assets by more than 70%, nearly half of them for oil and gas loans.

The bank said it had not seen any significant contagion from the troubles in the energy sector into its other lending businesses such as commercial real estate and business banking.


Become an Upstream member!

Membership includes a subscription to our weekly newspaper providing in-depth news from the energy industry, plus full-access to this site and its archives. Still not convinced? Try our free trial.

Already a member?