JPMorgan: Earnings Down, Credit Costs Way Up

Big bank hit hard by higher loan delinquencies.

By + More

JPMorgan—which became the nation's biggest bank by deposits with its recent acquisition of Washington Mutual's banking operations—reported sharply lower net income and a higher loan loss provision Wednesday in its third-quarter earnings report.

Some highlights from the results:

JPMorgan Chase & Co. (NYSE: JPM) today reported third-quarter 2008 net income of $527 million, compared with net income of $3.4 billion in the third quarter of 2007...

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: "Our third quarter financial results declined sharply, driven by markdowns on mortgage trading positions and leveraged loans, and higher credit costs due to continued deterioration in our home-lending portfolio..."

The following is from the bank's Retail Financial Services unit:

The provision for credit losses was $1.7 billion, as housing price declines have continued to result in significant increases in estimated losses, particularly for high loan-to-value home equity and mortgage loans.

Home equity net charge-offs were $663 million (2.78% net charge-off rate), compared with $150 million (0.65% net charge-off rate) in the prior year.

Subprime mortgage net charge-offs were $273 million (7.65% net charge-off rate), compared with $40 million (1.62% net charge-off rate) in the prior year.

Prime mortgage net charge-offs (including net charge-offs reflected in the Corporate segment) were $177 million (1.51% net charge-off rate), compared with $9 million (0.11% net charge-off rate) in the prior year.

The current-quarter provision includes an increase in the allowance for loan losses of $450 million due to increases in estimated losses in the subprime and home equity mortgage portfolios.

An additional $250 million increase in the allowance for loan losses for prime mortgage loans has been reflected in the Corporate segment.

The following is from the bank's Card Services unit:

The managed provision for credit losses was $2.2 billion, an increase of $866 million, or 64%, from the prior year, due to a higher level of charge-offs and an increase of $250 million in the allowance for loan losses.

The managed net charge-off rate for the quarter was 5.00%, up from 3.64% in the prior year and 4.98% in the prior quarter.

The 30-day managed delinquency rate was 3.69%, up from 3.25% in the prior year and 3.46% in the prior quarter.