JPMorgan Chase lifts reserves for bad oil, metals loans
JPMorgan Chase said it is setting aside an additional $600 million to cover potential loan defaults in the energy and mining sector and could reserve another $1.5 billion if conditions worsen. The biggest US bank by assets boosted its reserves for bad oil and gas loans by $500 million in the first quarter of 2016, taking the total to $1.3 billion, according to a presentation by chief financial officer Marianne Lake at an investor day.
In mining, JPMorgan boosted reserves by $100 million, taking the total to $350 million. Lake said JPMorgan could further boost its reserves by as much as $1.5 billion under a "stress scenario" in which the benchmark US oil price trades at $25 a barrel for 18 months. JPMorgan does not view this outcome as a baseline scenario, she said. The moves come as tumbling commodity prices pressure the finances of energy and mining companies. On Monday, Standard & Poor's downgraded Total, Statoil and BP on Monday, saying cheap oil prices would weaken the financial strength of the three top European oil companies. Lake said JPMorgan boosted the reserves as the outlook worsened after the end of 2015. "Sentiment has generally gotten worse," she said. JPMorgan said its total oil and gas lending exposure stands at $44 billion, with 57 percent ranked investment grade.