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The bankruptcies are continuing fast and furious across the energysector. With the ill-effects spreading beyond just the oil and gas business -- evidenced by major renewables firm SunEdison filing for Chapter 11 last month.
But the U.S. E&P sector still remains one of the biggest unknowns when it comes to bad loans. With numerous observers having recently warned about a big wave of defaults coming in this space.
And a new data point late last week suggests we may be reaching a tipping point.
That came from leading American investment bankJPMorgan. Which said in an SEC filing Friday that itsholdings of potentially badloanstookamajorjump over the past quarter.
JPMorgan reported on its holdings of "criticized" loans -- a term used in the banking industry to refer to "substandard or doubtful" debts. With the bank saying that its criticized loan portfolio leaptby45% over the last quarter -- to $21.2billion as of March 31, upfrom just $14.6billion at December 31, 2015.
The 3-month increase of $6.6 billion was driven mainly by one sector -- oilandgas. With the value of JPMorgan'scriticizedoilandgasloansrising $5.2billion over the last quarter. (Criticized loans to the miningandmetals sector also jumped55% during the quarter -- although the total increase was much smaller, at just over $600 million.)
All told, JPMorgan's exposure to criticized oil and gasloansnowtotals $9.7billion -- up from $4.5 billion at the end of 2015.
The bank did note most of these loan holders are still paying their bills. With "only" $1.7 billion worth of criticized oil and gas debt being categorized as "non-performing". However, that was a 665%rise from the previous quarter -- when only $222 million in loans were declared non-performing.
All of which confirms what we've been seeing anecdotally the last few months: the E&P sector is hitting the wall when it comes to debt.
Watchformorebankruptciescoming -- as well as issues emerging atU.S.banks due to growingexposuretobadenergyloans.
Here's to taking cover,
Dave Forest
dforest@piercepoints.com
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