JPMorgan Says Long-Term $25 Oil Means $1.5 Billion Reserve Boost

  • First-quarter reserve rise expected to be about $500 million
  • Sixty-one percent of oilfield-services exposure is rated junk

JPMorgan's Dimon: U.S. Consumer Wins From Low Oil Prices

JPMorgan Chase & Co., the biggest U.S. bank, said it would need to boost reserves for impaired energy loans by $1.5 billion if oil prices hold at about $25 a barrel over 18 months.

The first-quarter increase to reserves for oil and gas is expected to be about $500 million, bringing the total set aside to $1.3 billion, the New York-based firm said Tuesday in a presentation on its website. About 61 percent of the company’s oilfield-services credit exposure is now rated junk, the firm said. JPMorgan is scheduled to hold an investor day conference later Tuesday to detail its financial outlook.

Bank stocks have declined this year, partly out of concern that credit costs are increasing because of exposure to energy companies. Chief Financial Officer Marianne Lake said in January that oil at $30 a barrel for 18 months would mean $750 million in additional reserves. Oil traded for more than $33 a barrel on Tuesday after a rally on Monday.

“As the outlook for oil has weakened, we would expect to see some additional reserve build in 2016, but prices would need to remain at this level for an extended period for them to be significant,” Lake said in January.

JPMorgan maintained its $30 billion annual net income end-point in a three-year simulation that assumes costs cuts are achieved and interest rates rise. If rates don’t increase as much, the firm said it could earn $27.5 billion a year.

The bank will shutter or close 150 branches this year, according to the presentation.

Before it's here, it's on the Bloomberg Terminal.