“It’s not contained” to just the energy sector, said KKR’s co-head of credit, Nat Zilkha. He said other sectors that have suffered credit quality declines include retail, which in part has been beset by online competitors taking foot traffic from malls, and health-care services firms, among others.
JPMorgan CFO Marianne Lake told analysts on the bank’s call that it may again increase loan loss reserves, depending on commodity price fluctuations.
Banks are continuing to sell off reserve-based loans they had kept on their books, to a growing number of distressed secondary buyers, according to a sector banker who spoke with CNBC.com and asked to not be quoted directly because his firm is still in a pre-earnings quiet period. The banker said he expects other banks to increase their reserves to offset bad loans as the past quarter’s results are announced this week and next.
Regardless of banks’ reserves, companies in the energy sector have already been hit hard.
“Thirty-five Moody’s-rated corporate issuers defaulted in the fourth quarter of 2015, up from 24 in the third,” Moody’s Investors Service said in a report Wednesday. “Not surprisingly, oil and gas, the most troubled sector in 2015, contributed more than 30 percent of defaults in the fourth quarter.”