JPMorgan Just Did Something It Has Not Done In 6 Years# Stock
B*n
1 楼
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:
JP MORGAN'S DIMON SAYS NOT WORRIED ABOUT BIG OIL COMPANIES, PROVISIONS
ARE INCREASED AGAINST SMALLER ENERGY FIRMS
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.
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:
JP MORGAN'S DIMON SAYS NOT WORRIED ABOUT BIG OIL COMPANIES, PROVISIONS
ARE INCREASED AGAINST SMALLER ENERGY FIRMS
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.