JPMorgan sees consumer loan defaults rising

The Business Times
November 7, 2008, 11.31 pm (Singapore time)
JPMorgan sees consumer loan defaults rising

NEW YORK - JPMorgan Chase & Co said on Friday it expects consumer loan defaults to increase in the current quarter and sees higher loan loss provisions.

The bank has more than US$395 billion in consumer loans, with the largest chunk in home equity. Mortgages, credit cards and auto loans are also in the portfolio, according to a filing with regulators on Friday.

'Given the potential stress on the consumer from rising unemployment, the continued downward pressure on housing prices and the elevated national inventory of unsold homes, management remains extremely cautious,' the bank said in the filing.

It warned that home equity loans and more risky mortgages made since 2006 make up a large chunk of its portfolio, and defaults are rising as home prices continue to fall.

JPMorgan expects charge-offs of bad loans in its home lending portfolio to increase in the current quarter and into 2009, the filing said.

The bank's mortgage portfolio has performed better than those of some of its rivals because JPMorgan did not make as many of the more risky types of loans that caused massive writedowns at other banks such as Wachovia Corp.

JPMorgan has US$18.2 billion of risky mortgages known as subprime, including US$4.7 billion of subprime loans acquired when it bought Washington Mutual in September.

The bank said the charge-off rate for its credit card business may rise above 5 per cent in the fourth quarter and increase further next year.

The net charge-off rate for its managed credit cards climbed to 5 per cent in the third quarter, up from 3.64 per cent in the same period last year.

Separately, the bank said it expects an after-tax gain of US$600 million in the fourth quarter from the dissolution of Chase Paymentech Solutions, a joint venture with payments processor First Data Corp. -- REUTERS