- The Washington Times - Thursday, April 17, 2008

NEW YORK (AP) — JPMorgan Chase & Co., which recently scooped up the toppling investment bank Bear Stearns Cos., said yesterday that problems with mortgages and other loans cut its own first-quarter profit in half.

The earnings are better than expected, but reinforced the grim outlook for consumer credit that results from Wells Fargo, Washington Mutual and Wachovia also have revealed. Reports from Citigroup and Merrill Lynch later this week are unlikely to brighten the picture.

As the housing market crumbles, people are increasingly unable to pay their mortgages or use their home’s value to take out lines of credit. And banks say these trends will only worsen as the months wear on — which means losses expected not just in mortgages, but in all types of lending.

“Everybody knows real estate is bad. The question becomes, do we start to see more deterioration in non-real-estate consumer lending and non-real-estate commercial lending?” said Jeffrey Harte, bank analyst at Sandler O’Neill & Partners. “Credit’s the name of the game here — how bad is it, and how much worse will it get?”

JPMorgan said it strengthened its reserves for defaulting loans by $2.5 billion, and lost $2.6 billion in value from its portfolio of loans, which includes consumer loans as well as loans used to finance leveraged buyouts. The profit of the New York-based bank fell 50 percent to $2.37 billion, or 68 cents per share, on $16.9 billion in net revenue.

The results would have been worse had it not been for a pretax gain of $1.5 billion when JPMorgan sold its shares in Visa, which went public last month.

But the results were not as bad as many investors had forecast, and JPMorgan shares jumped $2.84, or 6.7 percent, to $44.96.

Wells Fargo’s results also pleased investors. Shares of the nation’s fifth-largest bank climbed $1.20, or 4.3 percent, to $29.01 after the bank said its first-quarter profit fell 11 percent to $2 billion, due to $1.5 billion in loan write-offs and a $500 million provision for future loan losses.

But executives from both banking giants indicated they face a rough road ahead.

JPMorgan’s CEO James Dimon said in a statement that if the economy stays weak and the credit markets remain stressed, as the bank expects, those factors “are likely to continue to negatively impact our firm’s credit losses, overall business volumes and earnings — possibly through the remainder of the year or longer.”

And according to Wells Fargo Chief Executive Officer John Stumpf, “We may not have seen the last of the challenges for this cycle.”

Both Mr. Dimon and Mr. Stumpf indicated, though, that they consider themselves the strong players on a field of weaker ones.

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