JPMorgan Chase & Co
The second-largest U.S. bank also said on Thursday it expects about $2.75 billion of savings from Washington Mutual, offset by $750 million of new investments. Retail banking chief Charlie Scharf said the bank expects to achieve most of the savings by the end of 2009, sooner than originally thought.
JPMorgan and Scharf discussed the outlook in a presentation to investors. The New York-based lender in September paid $1.9 billion for the banking units of Washington Mutual, the largest U.S. bank or thrift ever to fail. About 9,200 job cuts related to the acquisition had been announced in December.
In the presentation, JPMorgan said it remains well-positioned to weather economic turmoil, though the Washington Mutual acquisition magnified its exposure to U.S. consumers struggling with falling house prices, tight credit, and increasing mortgage and credit card defaults.
On Monday, JPMorgan unexpectedly cut its dividend 87 percent in an effort to save $5 billion a year and achieve Chief Executive Jamie Dimon's goal of a fortress balance sheet. The New York-based bank received $25 billion from the government last fall and the financial industry rescue program.
JPMorgan is shutting several hundred overlapping branches but plans to open 120 new branches this year. It has more than 5,000 branches, up from 539 as recently as 2003.
In afternoon trading, JPMorgan shares were up $1.78, or 8.2 percent, at $23.51 on the New York Stock Exchange. The KBW Bank Index <.BKX> of large U.S. lenders was up 7 percent.
HOME EQUITY, CREDIT CARDS UNDER PRESSURE
JPMorgan told investors that excluding Washington Mutual, it expects losses of $1 billion to $1.4 billion in each quarter this year from home equity loans to more creditworthy borrowers.
It said as many as 41 percent these borrowers will owe more than their homes are worth by the end of 2010, up from 27 percent at the end of 2008.
Scharf said California's housing market is showing signs of a bottom in home price deterioration, but Florida's is not. He also said that we know New York is going to deteriorate.
He said losses on loans made as the housing boom was cresting seem to be leveling out, at very high rates.... There will be an end in sight, just figuring out where it is not the easiest thing as we sit here today.
Housing problems and rising unemployment are also driving higher losses in JPMorgan's credit card business and may result in lower sales volume. Executives expect card losses to increase materially and are preparing for a 9 percent U.S. unemployment rate by year-end.
The American consumer feels much poorer than in previous recessions, credit card chief Gordon Smith said.
JPMorgan maintained its first-quarter outlook for a 7 percent net charge-off rate in card services.
(Reporting by Elinor Comlay and Jonathan Stempel; editing by John Wallace)