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JPMorgan results better than expected

Fri., July 18, 2008

But more creditworthy borrowers are defaulting

NEW YORK – The banking sector looked a little brighter for a second straight day Thursday after JPMorgan Chase & Co. reported better-than-expected results despite a spike in mortgage and other loan defaults.

The bank’s shares gained more than 13 percent Thursday after it reported a 53 percent drop in profit. Following Wells Fargo & Co.’s stronger-than-expected results released Wednesday, investors appear more confident that the banking sector, while struggling, will be propped up by some of its healthier players.

However, JPMorgan Chase, like its weaker competitors, still has a tough environment to slog through as the aftermath of the mortgage and credit crisis continues. Even the bank’s more creditworthy borrowers are now failing to make their mortgage payments – the charge-off rate for prime mortgages, which include more than $34 billion in jumbo mortgages and $2.5 billion in alt-A mortgages, nearly doubled from the first quarter to the second, from 0.48 percent to 0.91 percent.

“They’re staggering numbers. We have all the politicians telling people it’s OK not to pay your mortgages,” said JPMorgan Chase Chief Executive Jamie Dimon during a call with analysts.

He said it’s hard to predict how the prime mortgage trends will progress throughout the rest of 2008, but “our current expectation is those losses could triple from here.”

Jumbo mortgages are loans that exceed the maximum set by government entities Fannie Mae and Freddie Mac, and alt-A mortgages are given to people with minor credit problems or who lack proper documentation to get a traditional prime loan.

The main culprit is home prices, which are still tumbling.

“Even if it’s a prime mortgage, it could still be under water – even if they can afford to pay, people might be likely to walk,” said Celent analyst Bart Narter.

JPMorgan Chase earned $2 billion in the April to June period, down from $4.23 billion in the same time frame last year.

Revenue slipped 3 percent to $18.4 billion.


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