JPMorgan chief says 2009 will be bleak

By Francesco Guerrera in New York

Published: January 14 2009 18:48 | Last updated: January 14 2009 21:30

The US financial and economic crisis will worsen this year as hard-hit consumers default on credit cards and other loans, Jamie Dimon, chief executive of JPMorgan Chase, has predicted in an interview with the Financial Times.

Mr Dimon, whose bank will report fourth-quarter results on Thursday, gave his bleak assessment as shares on both sides of the Atlantic tumbled on rising fears that banks would need more capital and a larger-than-expected fall in US retail sales.

“The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009,” said Mr Dimon. “In terms of our sector, we expect consumer loans and credit cards to continue to get worse.”

Analysts predict that JPMorgan, which has navigated the financial turmoil better than most rivals, will just about break even in its fourth-quarter results.

Investor fears over the financial sector were stoked by Tuesday’s news that Citigroup is preparing to split off a third of the company into a “non-core” unit in a bid to ensure its survival.

Citi’s shares closed down 23 per cent to $4.53. Citi brought forward its earnings release by a week to Friday to end speculation about its losses – which analysts expect could total $6bn-$10bn in the fourth quarter.

The Standard & Poor’s 500 index closed down 3.4 per cent in New York, with retailers leading the way down following the news that US retail sales fell 2.7 per cent in December, more than forecast. Stocks in Europe were also down, with banks particularly hard hit after Deutsche Bank reported a large fourth-quarter loss.

Mr Dimon told the FT that JPMorgan was prepared for an expected deterioration in consumer-oriented businesses but added that if things were to get worse than expected it would have to cut costs again.

Mr Dimon said the bursting of the credit bubble would force the banking industry to refocus on its traditional businesses of advising on deals and lending to companies and individuals.

”When we look back at industry excesses in areas such as highly leveraged lending and securitisation, it is clear that some of these markets will never come back,” he said. “In the next few years, the industry will go back to basics: serving individual and corporate customers as best as we can.”

Analysts expect JPMorgan’s huge portfolio of consumer loans, credit cards and commercial mortgages to have been hit by rising defaults and higher provisions in the fourth quarter. The bank is in line to record a $5bn post-tax profit for the year – higher than most of its peers, but well below the $15bn in 2007.