JPMorgan CEO warns long slump may follow crunch
JPMorgan Chase & Co <JPM.N> Chairman and Chief Executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.
By Agencies |
NEWYORK: JPMorgan Chase & Co Chairman and Chief Executive JamieDimon on Monday told bank investors that while the current credit market crunchmay soon be over, the U.S. economy could still face a deep and extendedrecession.
The slump inmortgage and corporate loan markets could bottom out this year, said Dimon,whose bank largely side-stepped the losses and mark-downs that have hobbledrivals during the past year.
Yet the economy may face alonger-term challenge even as financial markets begin to function again, the"slower burn" of a recession that may rival the severity of the 1982contraction, he said.
Thesechallenging conditions, marked by tighter bank credit, new rounds of mark-downs,further capital infusions and asset sales by banks, could last through next yearand into 2010, he said.
Ifthat happens, Dimon warned that New York-based JPMorgan and its nationalconsumer lending businesses would suffer some significant losses, such as homeequity losses doubling to $900 million by year-end.
Dimon further warned that thebank would have to continue boosting loan-loss reserves if economic conditionsdeteriorate, further eating into profit.
In the current quarter, Dimonsaid subprime mortgage losses could rise to between $200 million and $250million, with prime mortgages generating about $100 million in losses.
Loss rates in JPMorgan Chase'smassive credit card business are expected to reach 5 percent in the secondquarter and rise to as high as 6 percent next year, while at the same timeinterest and fee revenue decline.
The third-largest U.S. bankalso expects to write down "several-hundred-million" dollars of auction ratesecurities, he said.
The slump inmortgage and corporate loan markets could bottom out this year, said Dimon,whose bank largely side-stepped the losses and mark-downs that have hobbledrivals during the past year.
Yet the economy may face alonger-term challenge even as financial markets begin to function again, the"slower burn" of a recession that may rival the severity of the 1982contraction, he said.
Thesechallenging conditions, marked by tighter bank credit, new rounds of mark-downs,further capital infusions and asset sales by banks, could last through next yearand into 2010, he said.
Ifthat happens, Dimon warned that New York-based JPMorgan and its nationalconsumer lending businesses would suffer some significant losses, such as homeequity losses doubling to $900 million by year-end.
Dimon further warned that thebank would have to continue boosting loan-loss reserves if economic conditionsdeteriorate, further eating into profit.
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In the current quarter, Dimonsaid subprime mortgage losses could rise to between $200 million and $250million, with prime mortgages generating about $100 million in losses.
Loss rates in JPMorgan Chase'smassive credit card business are expected to reach 5 percent in the secondquarter and rise to as high as 6 percent next year, while at the same timeinterest and fee revenue decline.
The third-largest U.S. bankalso expects to write down "several-hundred-million" dollars of auction ratesecurities, he said.
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