Oil may push banks to boost reserves

After JPMorgan announced Tuesday that it would increase reserves to offset losses on loans in the energy sector, Wall Street is waiting for more shoes to drop.

Workers at an oil well in Kazakhstan.
Shamil Zhumatov | Reuters
Workers at an oil well in Kazakhstan.

Wall Street banks are left with a tough choice.

They either can update investors now on oil exposure in 2016, in advance of earnings, and face potential steep sell-offs of their stock, or they can wait until April.

One analyst said he expects Wall Street banks to get ahead of energy loan loss news and announce expanded capital reserves to offset loans to companies in the energy, mining and metals space in advance of earnings.

Wall Street firms including Bank of America, Wells Fargo and Citigroup have yet to issue their expectations for how much loan losses in the energy sector will be offset by cash reserves. The banks declined to comment when contacted by CNBC.com.

The expectation is that most Wall Street banks will seek to announce their reserves before earnings are announced, said Erik Oja, banking and lending analyst at S&P Global Market Intelligence.

"We see it as manageable," Oja said, adding, "I don't see oil staying at $25 [per barrel] for a long time."

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His opinion would hearten many Wall Street executives, who have seen bank stocks begin the year trading in a close pattern with oil price declines. As crude has fallen, so have banks, and most have lost 10 percent or more of their market value in a turbulent start to the year.

JPMorgan Chase on Tuesday decided to reveal its reserves. Even tucking news of the reserve increase into an otherwise optimistic investor day couldn't shield the bank's shares from losses when it revealed the bigger buffer. The stock fell for more than 4 percent Tuesday, worse than its sector competitors.

The bank has $44 billion in exposure to oil sector loans, but only about a third of that capital has been borrowed by companies with which JPMorgan has open lending facilities. JPMorgan CEO Jamie Dimon said at the investor day event that he doesn't expect the bank's corporate clients to begin pulling down all of the capital it has allocated for energy sector lending.

Read MoreJPMorgan: We're bracing for more energy losses

Dimon acknowledged that the bank's existing capital that energy sector borrowers have not yet used remains a challenge in charting out JPMorgan's future reserve plans.

"We don't exactly know," Dimon said, addressing the difficulty of estimating future energy sector borrowers. "I put it in the drop-in-the-bucket category," he added, referring to energy reserves.

In fact, there are analysts who agree with Dimon's view, regardless of how negatively the market perceives potential losses for the banking sector on energy struggles.

"It's going to be a lot of sound and fury," said Rafferty Capital's Dick Bove. "But this is not the housing crisis. It's one-tenth of what the exposure was" to real estate before the onset of the global financial crisis.