J.P. Morgan Has Lost $8.7 Billion in Value Over the Last Two Days
Shares of J.P. Morgan Chase (JPM) have lost nearly $8.7 billion in value in the last two days, after CEO Jamie Dimon announced plans to increase energy loan reserves by 60% to $1.3 billion.
Dimon told investors Tuesday that the bank had added roughly $500 million to its reserves for energy sector loan losses in the first quarter of 2016. Although that brings J.P. Morgan’s reserves up to just below 3% of the bank’s exposure to the sector, the news shook investor confidence.
Shares fell 4.2%, to $56.11 Tuesday. The stock continued its slide Wednesday, falling 1.43% and whittling down Morgan’s market cap to $203.1 billion.
During Tuesday’s summit, Dimon also projected that J.P. Morgan’s losses from loans made out to the energy sector could equal as much as $2.8 billion. The bank’s total exposure to oil and gas is roughly $44 billion. About $19 billion of its energy loans were given to companies now rated as junk.
The news comes in a year when the financial sector has grown increasingly shaky, wondering how the downturn in oil prices will affect banks that have loaned heavily to the energy sector.
Fellow banking titan Goldman Sachs (GS) disclosed in a regulatory filing on Monday that 40% of its loans were made out to oil and gas companies that had been relegated to junk.
It also should be noted that investor sentiment regarding oil was low yesterday after Saudi Arabia’s Oil Minister Ali al-Naimi ruled out the possibility of oil production cuts, sending prices below $33 per barrel Wednesday.
For Dimon, the price of oil and losses from loans in the energy sector could have an adverse effect on his paycheck this year. The CEO has the chance to earn over $10 million in his 2015 performance bonus, according to Bloomberg —if he can lead J.P. Morgan to outperform five of its peers. Performance is measured as the company’s returns on common equity—which the bank posted as a record-breaking 13% in 2015. Dimon’s total 2015 compensation package is valued at $27 million, Bloomberg reported.
And it’s not just energy loans and reserves that Dimon will have to juggle. J.P. Morgan reported that investment-banking fee revenues have fallen 25% vs. the same quarter a year earlier. Its trading business is down 20% from a year ago as well.
J.P. Morgan shares have lost 16.5% of their value since Dec. 31.