JPMorgan Just Did Something It Has Not Done In 6 Years

Tyler Durden's picture

Yesterday we reported something disturbing: a small regional bank, BOK Financial, announced that it had underestimated its exposure to energy loans, or rather loan, issued by just one company, and as a result its  previously forecasted provision for credit losses of $3.5 million to $8.5 million would be insufficient, and due to the unexpected loan impairment it would have to take a dramatic $22.5 million in credit losses." As a result BOKF stock crashed and is now trading at levels not seen since 2010.

The reason this is troubling is because as we said yesterday "banks have taken every possible opportunity to assure investors they all overly provisioned for any potential losses stemming from their exposure to impaired energy loans."

Clearly when it came to at least one lender this was not the case. And now the attention shifts to all the other banks, which brings us to the first big bank to report earnings earlier today, JPM.

Earlier we spread the company's financials and showed that while revenues had barely grown, and in the all important Investment Banking and Trading division revenues actually declined (offset with big cuts to compensation expenses, read bonuses), something else stood out: when skimming through the company's loan loss reserve disclosure, we found that in Q4 JPM did something it hasn't done in 6 years: for the first time in 22 quarters, or since March 2010, JPM actually increased its loan loss provisions by $89 million, instead of reducing this amount.

Indicatively, after peaking at $38.2 billion in Q1 2010, the amount of loan loss reserves had declined by $24.7 billion (an amount that went straight to JPM's net income line) through Q3 2015, before rising for the first time in 6 years in the fourth quarter.

What happened?

As JPM disclosed in its earnings presentation, it had taken a "reserve build of ~$100mm driven by $60mm in Oil & Gas and $26mm in Metals & Mining" within the commercial banking group."

In other words, after half a decade of smooth sailing, Jamie Dimon is starting to get concerned.  This is what he said during the JPM earnings call:


So JPM is not worried about big oil companies for now, but by implication it is worried about "smaller energy firms." The problem is that "smaller energy firms" account for about half of the production and the leverage in the US shale space, and many US banks - if not JPM - are directly exposed to them.

Which brings us back to the original question: if a regional bank like BOK Financial was slammed by just one loan (to what we can only assume was a smaller energy firm), where does the buck stop, and how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans. And most importantly, how long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones: how underreserved is JPM for that eventuality?

As for the rest, earnings season is just getting started: we expect to find just who has been far more busy managing investor expectations instead of actually provisioning for soaring loan losses in the coming weeks. Remember: increasingly more managers are predicting that up to a third of US energy companies will go bankrupt if oil fails to rebound from current prices. And that is an eventuality no bank has provisioned for.

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hungrydweller's picture

Fuckers are probably shorting their own stock right about now too.

Silver Bug's picture

Surprise surprise, the big banks are misleading their investors! These crooks deserve to be locked up.

Truther's picture

On another note, guess what's dying at the seas. It was 394 yesterday. Trade is fucked, but I guess the MSM is too fucking busy for this kind of news,


JRobby's picture

Loan defaults are increasing because incomes are falling faster than previously.


amanfromMars's picture

That trick just aint gonna work anywhere well nowadays, hungrydweller. It has had its day in prime sub-prime time. 

Xatos's picture

Trickle trickle, drip drip.

ajkreider's picture

Their delinquency rates nudged a bit higher.


BTW, I don't get why people think loan loss reserves are BS.  It shows an improving balance sheet, which should be reflected in the stock.

Iam_Silverman's picture

"BTW, I don't get why people think loan loss reserves are BS.  It shows an improving balance sheet, which should be reflected in the stock."

Because that money would be better spent on stock repurchases!  Return that money to the investors!  Don't let it just sit there - not doing anything.

I was being facetious, in case you were wondering....

buzzsaw99's picture

i don't know why they keep any reserves at all. they can sell any rotten pos they want to the fed.

TheDanimal's picture

It's simple, to maintain the illusion of business as usual.

Infinity2020's picture

China's up, buy the bounce, then again perhaps not!

NoDebt's picture

"how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans?"

Ooo!  Ooo!  Me!  Me!  I know the answer to that one!  

Dr. Engali's picture

No worries, grandmama Janet will take those nasty loans of the morgue's books.

roadhazard's picture

But Jamie still made 10%, right? I was never any good at accounting.

ebworthen's picture

That's why Bullard talked up oil this morning.

"Yeah, hi, Mr. Bullard, this is Mr. Dimon..." 

"Yes Sir Mr. Dimon!  What can I do for you?"

Seasmoke's picture

There is never just one cockroach.

Baron Munchausen's picture

Dear jpm:

Too little, and too late.

There is only one Lord of the rings, and it is Goldman Sauron.

Ever see pigs eat each other?

Consuelo's picture



"Remember: increasingly more managers are predicting that up to a third of US energy companies will go bankrupt if oil fails to rebound from current prices. And that is an eventuality no bank has provisioned for."

I guess Gulf of Tonkin II didn't work out quite as planned the other day.    Perhaps something slightly more aggressive is in order to obtain the desired ($100/bbl) effect...?   Doesn't look like they can bankrupt Putin, so that strategy is off the table...    

Panic Mode's picture

Just a phone call to Yellen and everything is sorted.

LawsofPhysics's picture

Yes, and presto another tax deduction and free money for another TBTF bank...

Same as it ever was...

Want to see oil "prices" rebound, remove ALL the subsidies and tax breaks for the enery sector!!!!!


Start WWIII..

gcjohns1971's picture

In a debt based fiat currency the debt goes on the Fed's asset sheet,  and a balancing entry of "currency" is created on their liability sheet.

But the currency represented by the interest rate on that original debt is not created.

Instead, as the interest is paid the monetary base contracts, leaving too little currency in existence to pay off the debt.

Later they will "roll-over" the old debt with a larger debt big enough to cover the principal and interest on the first debt.

But before that happens there will be a shortage of cash...meaning it will be harder for debtors outside the financial industry to make payments.

Hence JPM's loan loss increase.



It is a question of public confidence.

Fractional reserve banks loan out multiples of their deposits.  10 X deposits for US banks.

Those loans become "deposits" in another bank.   And this also means that one banks "loan loss" is another banks "deposit (asset) loss".

And an asset loss always wipes out any loans written against those deposits...wiping out yet another banks deposits.  And so on.

So, all such monetary deflation risks uncontrollable run away debt collapse.

Hence Central Bankers perpetual preference for inflation...which not only helps debtors pay, but also helps defaulted get away with real goods and services in return for ... Nothing.

But what happens when too many people figure out the scam and take loans INTENDED to default????? (liar loans)

Then you can't print your way out any more, for each rise i, monetary inflation results in an equal rise in fraudulent loans...until confidence in the currency is lost.

The higher total debt, the more the tendency to default.

The more the tendency to default the more money must be printed.

The more money is printed the higher the total debt, and the lower the confidence in the currency...and around we go until the currency collapses.

You guess when.

It is all about popular confidence in the currency, and economy.

But when everyone knows fraud to be easier than production civilization must collapse from lack of production.

LawsofPhysics's picture

Almost.  It is in fact all about power and control over real resources, including the human kind.

Sorry_about_Dresden's picture

Nice synopsis! +10

Julie Hyman is giddy today!!!!!

Iam_Silverman's picture

"Julie Hyman is giddy today"

But, her brother, Buster Hyman, seems to be as surly as ever.