JPMorgan Chase 7 Co. (JPM) reported a double-digit drop in investment banking revenues, along with a $500 increase in provisions set aside for losses expected on energy loans. The latter is a result of declining oil prices, market volatility, regulator pressure, low interest rates, and other issues. Crude oil dropping to about $32/barrel has not helped.
According to Forbes, previously, the bank had set aside $815M to cover lending losses in the energy sector. The firm also has exposures to the extent that JPMorgan has put aside $350M for credit losses related to mining. The bank also is involved in $4.1B of commercial real estate lending in areas that are energy sensitive and a $2.7B business banking book in the gas and oil industry.
The Business Recorder reports that the firm’s portfolio for oil and gas is $43 billion. Its latest projections are a departure from last month, when JPMorgan told investors that it expected to make incremental increases to loss reserves related to energy-related loans.
That said, losses in the energy sector are not expected to exceed the $6B the firm suffered in trading in the London Whale scandal, not to mention the $920m penalty it had to pay to regulators and the $150M to investors to resolve that matter.
JPMorgan is not the only bank putting money aside. According to FT-Com, industry-wide numbers published by The Federal Deposit Insurance Corporation indicate that other banks are also expecting that they’ll have to cover losses caused by bad loans. FDIC said that loan portfolio growth also is playing a part in the need for financial provisions.
JPMorgan Says its Energy Sector Losses Could Reach $3 billion, Fortune, February 23, 2016
JPMorgan to raise loan loss reserves to cover energy pain, FT.com, February 23, 2016