JPMorgan isn’t sweating over the collapsing oil price.
JPMorgan CFO Marianne Lake reiterated comments she’d made last quarter that if oil reached $30 a barrel and remained there for an extended period of time — “call it 18 months” — we would likely see reserve builds of about $750 million.
On Wednesday, Brent crude — the international benchmark — cracked $30 a barrel at one point, its lowest level since 2004. West Texas Intermediate crude oil was trading at around $30.50 a barrel on Wednesday.
Asked whether JPMorgan should be making additional provisions, Dimon said he was comfortable with their forecasts.
He said that while well production and cash flows are down, “Surprisingly, the cost of getting the oil out of the ground has also dropped dramatically, and probably much more than most of us would have expected.”
He added that JPMorgan’s energy book “isn’t that large relative” to the size of the entire firm.
“We’re not worried about the big oil companies,” he said. “These are mostly the smaller ones that you’re talking about these reserve increases on.”
Good times and bad
Asked whether the firm will continue to make loans to oil and gas companies, despite the heightened probability of defaults, Dimon noted that the loans they are making are asset-backed. That means that if a company defaults, their loan does not necessarily go bad, he said.
But, Dimon said, he also looks at his companies’ relationships with oil and gas clients through a more philosophical lens.
“A bank is supposed to be there in good times and bad times,” he said. “So it’s not a trading market when you try to support clients. To the extent that we can responsibly support clients we’re going to. And if we lose a little bit more money because of it, so be it.”
He added: “If banks just completely pull out of markets every time it gets volatile and scary, you’d be sinking companies left and right.”