Back on January 14, we noted that JPMorgan did something they haven’t done in 22 quarters: the bank increased its loan loss provisions.
The "reserve build of ~$100mm [is] driven by $60mm in Oil & Gas and $26mm in Metals & Mining within the commercial banking group,” the bank said.
That led us to ask of JPMorgan the same thing we’ve asked of Wells Fargo, BofA, and every other TBTF that’s gotten itself overextended in America’s soon-to-be bankrupt O&G space: "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?"
Most importantly, we said, are these follow up questions:
“How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how underreserved is JPM for that eventuality?”
Today, just over a month later, we got the answer ahead of JPM's investor day, when JPMorgan said it will increase its reserves for oil and gas loans by 60% in Q1.
As you can see from the following slide, provisions will rise by $500 million from $815 million the bank had set aside as of the end of last year. Metals and mining reserves will also rise, by $100 million.
Note also that the bank says it may be forced to provision another $1.5 billion should crude prices stay at or near $25 for an extended period of time.
As is apparent from the chart, Dimon's "fortress" balance sheet includes some $19 billion in HY O&G exposure. We're anxious to see if the vaunted billionaire will dismiss the enormous writedowns that are invariably coming in the next few quarters as a "tempest in a teapot."
We also wonder which bulge bracket bank will be the next to admit that it's woefully underreserved for 2016's inevitable crude carnage.