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This New Report Shows The Shale Debt Crisis Is Hitting Record Levels
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The bankruptcies are continuing fast and furious across the energy sector. 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 bank JPMorgan. Which said in an SEC filing Friday that its holdings of potentially bad loans took a major jump 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 leapt by 45% over the last quarter -- to $21.2 billion as of March 31, up from just $14.6 billion at December 31, 2015.

The 3-month increase of $6.6 billion was driven mainly by one sector -- oil and gas. With the value of JPMorgan's criticized oil and gas loans rising $5.2 billion over the last quarter. (Criticized loans to the mining and metals sector also jumped 55% during the quarter -- although the total increase was much smaller, at just over $600 million.)

All told, JPMorgan's exposure to criticized oil and gas loans now totals $9.7 billion -- 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. Watch for more bankruptcies coming -- as well as issues emerging at U.S. banks due to growing exposure to bad energy loans. 

Here's to taking cover,

Dave Forest
dforest@piercepoints.com

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