Thursday, May 28, 2009
JPMorgan chief in alert over WaMu credit card loans
By Henny Sender and Saskia Scholtes in New York Published: May 28 2009 03:00 Last updated: May 28 2009 03:00 Jamie Dimon, JPMorgan Chase chief executive, warned yesterday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end. In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans. At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 per cent to 24 per cent by the end of 2009, depending on economic conditions. Describing credit cards as JPMorgan's most challenged business, Mr Dimon said loss rates for the company's larger $150bn portfolio of Chase credit cards could reach 9 per cent in the third quarter and as much as 10.5 per cent by the end of the year, depending on housing and unemployment trends. That compares with first-quarter charge-off rates of 6.86 per cent on the Chase card portfolio. In parts of the US that are particularly distressed - such as the states of Arizona, California, Florida, Nevada and Virginia - net charge-offs for the Chase credit card loans already amounted to 9.9 per cent of the total at the end of the first quarter, up from 5.5 per cent in the first quarter of 2008, Mr Dimon said. He said he believed that a new law restricting higher interest rates on delinquent credit card debt for the first 60 days could make credit cards more expensive. Banks are repricing credit cards and cutting credit lines before the new rules take effect, pushing borrowers into distress in some instances, according to industry executives. Turning to other subjects, Mr Dimon said it was "a given that commercial real estate will get worse". However, he said JPMorgan had been cautious about making loans in the sector and was comparatively less exposed to the problem. Mr Dimon gave an upbeat view of the bank's earnings power, noting that reduced leverage would be more than offset by increased spreads in the markets, giving JPMorgan the ability to aspire to an 18 per cent to 20 per cent return on equity.