JP to set aside $2.4B in loan loss reserves

JPMorgan Chase & Co. will likely add $2.4 billion to its loan loss reserves in the fourth quarter, chief executive Jamie Dimon said in a presentation to investors Wednesday afternoon, based on continuing deterioration in home lending and credit cards.
Credit quality on the corporate side has held up better, with the bank’s nonperforming loans and charge-off rates low compared to those of its competitors, Mr. Dimon said.
But the bank is expecting and preparing for the worst even there.
Real estate banking, especially, has been weak, with nonperforming loans as a percentage of total average loans at 3.68% in the third quarter.
“In an environment that is stressed like this, you have to see nonperformers and charge-offs go up,” Mr. Dimon said.
“We think we’re kind of prepared, but we’re expecting [commercial lending] to deteriorate.”
JPMorgan is still strong in lending, he emphasized.
Overall, the bank added $24 billion in loans during the third quarter, including $10 billion in drawn-down revolvers.
Another $300 billion in undrawn revolvers is still available to companies, Mr. Dimon said, which the bank needs to be prepared for.
On the consumer side, JPMorgan has begun the process of working with mortgage holders to adjust terms.
The bank has already modified 250,000 mortgages, and it expects to modify another 400,000, Mr. Dimon said.
“We think it is the right thing to do for our shareholders.”
Addressing the criticism that TARP capital, which brought J.P. Morgan’s tier one capital ratio to 10.8%, should be used for loans, Mr. Dimon said J.P. Morgan would continue to support businesses.
But he added that maintaining the safety and soundness of the company is his paramount concern.
“We’re actively thinking about ways to put this capital to use in the lending business and other businesses we have, and we’re going to be creative,” he said.
“Hopefully you’ll see a couple programs that we come out with that you think are pretty neat.”
“We’re trying to [use the capital] in a very healthy, very good way,”
Mr. Dimon said. “We’re still in the business; we’re still making loans, we intend to continue to make loans, and do it in a safe and sound way.”
The integration of Bear Stearns is almost complete, except for some systems, Mr. Dimon noted.
“De-risking” Bear Stearns cost J.P. Morgan about $10 billion more than initially anticipated, but the expectation is still that Bear will contribute about $1 billion in earnings annually by the end of next year.
Mr. Dimon said the bank’s management hoped to have all branches of the recently acquired Washington Mutual converted to the JPMorgan Chase banner by the end of next year.
“We still think that this is a great strategic fit for our company,” he noted.
Hailed at the Merrill Lynch banking conference as a successor to JPMorgan Jr., whose bank emerged stronger after the panic of 1907, Mr. Dimon acknowledged he’s no soothsayer.
He said he’s at as much of a loss as anyone else in the industry when it comes to predicting the extent and depth of the economic downturn.
“I wrack my brain to figure out what else is going to happen,” he said.
“We think it’s all on the table at this point.”

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