May 26, 2009
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News: JPMorgan CC Losses Levels Off
JPMorgan Chase continues to look at difficult times ahead in the credit card and commercial real estate business. Jamie Dimon, CEO of one of the nation's largest financial institutions said the company predicts losses will continue to grow to near 9% of the total credit card outstanding debt for second quarter 2009. Losses for first quarter 2009 were at 6.86% nearly double from a year ago. Dimon says the expected losses could possibly creep even higher if unemployment continues to grow beyond expectations. A general rule is that card losses correlate to the unemployment rate. With unemployment rates at the highest it's been in decades, all major banks including JPMorgan have seen a sharp rise in credit card defaults. In April, the unemployment rate rose to 8.9%. The Federal Reserve has predicted this number will grow to 9.6% by the end of 2009. With these predicted high rates, it seems likely that JPMorgan and other banks will continue to face difficulties in the near future.
In spite of the negative numbers, Dimon says JPMorgan is prepared to deal with the increasing credit card defaults. The results of the government's stress test indicated that the bank had sufficient capital to weather the storm of the recession. Dimon did, however, voice his concerns about possible negative effects on the financial industry with the signing of the new credit card reform legislation. He believes that the new government regulations will cost the bank nearly $500 million a year in revenues. According to Dimon, cardholders will begin to experience new annual fees and reductions in rewards as a result of the new law.
In addition to JPMorgan's credit card losses, the bank has experienced a surge of commercial mortgage defaults while personal mortgage loans have begun to depress. Leveling out losses is of particular concern for the bank since it was among those banks who participated in the government bailout program. They have made it a priority to repay the $25 billion it borrowed back in an expedient manner. Although JPMorgan continues to experience the backlash of a recession and high unemployment, according to analysts the bank is performing better than its competitors.