JPMorgan strikes bullish tone even as oil woes rise

February 24 04:44 2016

In the latest sign of a divided economy, JPMorgan Chase CEO Jamie Dimon gave an impassioned speech Tuesday about how U.S. consumers are “winners” of the current economy, even as the bank warned of rising energy defaults. “The U.S. consumer is a huge winner” of falling oil prices, Dimon told investors at the company’s annual Investor Day in New York on Tuesday. “They are actually buying stuff, and we are actually seeing them buying stuff,” he said.JPMorgan Plans To Eliminate 1,800 Employees in Mortgage Unit

“There are pretty good odds, in my opinion, that the noise will sort out and we will be okay,” he said of the U.S. economy. The bullish comments come as the $218 billion bank’s stock has fallen 11% this year on fears that bank profits will be squeezed this year due to falling oil prices and other signs of an economic slowdown. JPMorgan only reinforced those fears Tuesday when it said it will increase its cash cushion against bad energy loans by $500 million to $1.3 billion for the three-month period ending in March.The bank’s stock dropped 3.7% to $56.38 on news of the move, which will increase the banks’ costs.

Last month, JPMorgan upped its cushion against troubled oil and gas credits by $124 million in the fourth quarter — its first reserve for bad loans since 2011 — as oil prices plunged to $30 a barrel, placing pressure on energy companies’ earnings. On Tuesday the bank warned that its reserves for bad oil and gas loans could jump another $1.5 billion if oil prices stay at $25 a barrel for 18 months. Last month JPMorgan said reserves for bad oil and gas loans could jump to as high as $750 million assuming oil prices continue to hoover around $30 a barrel for 18 months.

The bank also said it plans to increase its reserve against metal and mining debts by $100 million to $350 million this quarter. Despite growing signs of loan losses, Dimon sought to convince investors on Tuesday that Main Street is doing just fine. Consumers’ “balance sheets are in very good shape” even if corporate earnings are not, he said. Skewing perceptions, he said, is the fact that manufacturing, which makes up just 12% of the overall economy, occupies over 50% of the profits of the S&P 500.