JP Morgan reported late last month that its total exposure to oil & gas credit (directly on its books, I would assume) is $44 billion, or which $19 billion is currently rated junk. There was no update as to junk or junk-like corporates beyond energy, which in the end might be the more pressing concern. The old joke is that no A-rated or above obligor has ever defaulted because they are downgraded before it ever gets that far. So the question isn’t how much is oil junk bonds now, it is how much across the whole corporate spectrum will be junk and at risk before it’s all over. To that end, Morgan indicated it had set aside an additional $500 million loan loss reserves for just energy exposure; its shares were not enthused.

That isn’t the extent of concern about JP Morgan or really any of these banks, though that isn’t to say that energy and corporate junk won’t be at the front of the line moving forward. Within its 2015 annual filing, the bank also suggested the same problems as we see universally of global banks in its CIB space – Corporate Investment Banking. From the filing:

In CIB, management expects Investment Banking revenue in the first quarter of 2016 to be approximately 25% lower than the prior year first quarter, driven by current market conditions in the underwriting businesses. In addition, Markets revenue to date in the first quarter of 2016 is down approximately 20%, when compared to a particularly strong period in the prior year and reflecting the current challenging market conditions.

As detailed yesterday in other euro/dollar anecdotes, notably Barclays and RBS, “investment banking” just doesn’t make much money anymore. It isn’t surprising, then, to find JPM, one of the Big 4 derivatives dealers, shrinking. The reduction in dark leverage continued through the end of last year; interest rate swaps gross notionals declined by $11.4 trillion to just $36.7 trillion in 2015, representing less than half the IR book when JPM took over Bear Stearns in early 2008.

As is plain in both IR swaps and Credit derivatives, regulations are not the prominent factor; QE is (or was) more than anything, suggesting as almost all the other euro/dollar anecdotes that banks “play” when “easy money” is thought to be the condition under the central bank umbrella. From the start of QE2 whispers in Q3 2010 until the taper drama of the middle of 2013, JPM was writing CDS again, with notionals jumping from $5.3 trillion to $6.5 trillion; that didn’t come close to erasing the massive declines during (lost capacity) the panic but it shows that JP Morgan was betting on recovery. This was, after all, the London Whale episode.