Further evidence of the deteriorating state of the US economy emerged yesterday as both JPMorgan Chase and Wells Fargo reported that fourth-quarter earnings had been hit by higher provisions for loan losses in consumer-related businesses.
The results from the two big banks followed the disclosure by Citigroup on Tuesday that credit costs in its US consumer business had risen by $4.1bn as more borrowers, hit by falling house prices, struggled to keep up with payments on credit card, auto and home equity loans.
JPMorgan once again avoided the huge writedowns on subprime mortgage-related securities that have plagued its rivals.
However, provisions in its retail financial services division rose to $1.1bn from $262m last year. In the credit card unit, JPMorgan set aside $1.8bn, up $507m, or 40 per cent, from last year.
Overall, the bank said it had earned $3bn, or 86 cents per share, in the quarter, down 34 per cent from $4.53bn, or $1.26 per share, last year. Last year's fourth quarter included a $622m gain from the sale of corporate trust businesses.
JPMorgan said it had a $1.3bn writedown, net of hedges, on subprime mortgage-related holdings. That figure compared with an $18.1bn writedown ann-ounced by Citigroup on Tuesday and a writedown of $15bn or more expected from Merrill Lynch today.
Unlike Citi and Merrill, JPMorgan was never a significant creator of collateralised debt obligations backed by residential mortgages - a decision that is now paying off for the bank.
Shares in JPMorgan rose 5.8 per cent to $41.43 yesterday as investors cheered the relatively light subprime hit. They may also have been reacting to fresh comments from Jamie Dimon, chief executive, suggesting he would like to use the weakness in financial shares to make acquisitions at bargain prices.
"In terms of either buying assets or buying companies, we're very open-minded," Mr Dimon said. "This environment doesn't change that at all." JPMorgan is considered a potential buyer of several big regional banks.
Meanwhile, Wells Fargo reported its lowest quarterly profit in six years as earnings fell 38 per cent to $1.36bn, or 41 cents per share, from $2.18bn, or 64 cents per share, last year.
Wells set aside $1.4bn to cover anticipated loan losses. Loans more than 90 days past due had risen to $6.39bn at the end of the year.
