Bloomberg / JPM :
JPMorgan May Post Smallest Net Since Dimon Took Helm (Update1)
By Elizabeth Hester
Jan. 13 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, may report its smallest profit since Jamie Dimon was named chief executive officer as credit quality and loan values declined.
Fourth-quarter earnings probably will decline to $519.3 million, or 83 percent less than the same period in 2007, based on the average estimate of seven analysts surveyed by Bloomberg. Per-share earnings may be close to zero at the New York-based company, which moved up the earnings announcement to Jan. 15 from next week.
The year-old U.S. recession, falling prices for loans and an unemployment rate at a 15-year high are reducing earnings at U.S. banks, which were already struggling to cope with the global credit contraction that began in 2007. JPMorgan will probably report rising defaults on consumer loans such as credit cards and mortgages, and declining revenue from investment banking.
“Our earnings have been terrible,” Dimon, who was named CEO in 2005, said in a speech to a health-care conference in San Francisco yesterday. He said the financial system went into “cardiac arrest” in September, and predicted the U.S. recession would continue for at least two more quarters.
JPMorgan has taken $20.5 billion in writedowns, losses and credit provisions since the start of the financial crisis, compared with about $67 billion at Citigroup Inc., data compiled by Bloomberg show. Its shares lost 36 percent in the past 12 months, versus Citigroup’s 80 percent tumble. Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. bank, has declined 72 percent.
Possible Loss
John McDonald, an analyst at Sanford C Bernstein & Co., expects the bank to report its first quarterly loss since 2004, “driven by a brutal capital-markets environment, substantially higher credit costs and additional mark-to-market writedowns on its risky assets,” he wrote in a research note.
Retail banking may post a loss of $210 million, McDonald said, as the company sets aside more money to cover home loans that are going bad. Losses on home-equity and subprime loans may force the bank to set aside $1 billion, according to McDonald.
JPMorgan will stop making home loans through independent mortgage brokers as of Jan. 16, spokeswoman Christine Holevas said today. Last year, the bank stopped using brokers for loans to those with weaker credit, she said.
Home Equity
Delinquencies on home-equity lines of credit rose to 1.15 percent from July through September from 1.08 percent in the preceding quarter, the American Bankers Association said Jan. 7. Home-equity loan delinquencies rose to 2.63 percent, the group said, based on surveys of more than 300 banks to monitor reported payments of consumer loans falling more than 30 days past due.
JPMorgan also faces rising losses in its credit-card division as the higher unemployment prevents some borrowers from paying off debt. The unit could lose $70 million in the fourth quarter, with charge-off rates climbing to 5.25 percent from 5 percent in the third quarter, McDonald said.
Income from Washington Mutual Inc., which JPMorgan purchased in September, may add 10 cents a share to earnings, Sandler O’Neill & Partners LP analyst Jeffery Harte said in a Jan. 7 research note. The acquisition may also push JPMorgan to set aside $900 million to cover bad loans from WaMu, Guy Moszkowski, an analyst at Banc of America Securities/Merrill Lynch, said.
Fourth-quarter writedowns in JPMorgan’s investment bank, which includes leveraged loans and mortgage-related holdings, may total $2.8 billion, Moszkowski estimated in a Dec. 15 research note. JPMorgan took a $1 billion writedown in the third-quarter on deals completed in 2007, before the credit markets seized up.
Leveraged Loans
The average actively traded leveraged loan fell from 94.9 cents on the dollar at the end of 2007 to about 89 cents on the dollar by September, according to Standard & Poor’s LCD. That month, prices tumbled around 9 cents and by the end of 2008 loan values had fallen to 66.63 cents. They have rebounded since the end of the year to 71.3 cents, the data show.
JPMorgan is the biggest holder of Tribune Co. debt, with $1 billion, according to court documents. Tribune, the media company that filed for bankruptcy protection on Dec. 8, saw the value of its bank loans tumble to less than 30 cents on the dollar from 70 cents in September, according to London-based pricing service Markit.
Chrysler LLC debt may also crimp results. JPMorgan and Bear Stearns Cos., which the bank agreed to buy in March, underwrote debt that financed the $7.4 billion takeover of Chrysler by private-equity firm Cerberus Capital Management LP. The car company’s bank loans were quoted as low as 22 cents on the dollar in December, as Congress loaned $17.4 billion to automakers. They were worth more than double that in September, according to LCD.
Joint Venture
The bank is also expected to post a $600 million gain on the ending of its Paymentech joint venture with First Data Corp. announced in May, Sandler’s Harte said.
“We have little doubt JPMorgan will emerge from the current crisis as a dominant global financial-services presence, and remain confident management can execute, but it is increasingly clear that credit costs in the U.S. will get much worse,” Moszkowski at Banc of America said.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
Last Updated: January 13, 2009 15:15 EST
