JPMorgan chief warns of long, deep US recession

JPMorgan chief warns of long, deep US recession

(NEW YORK) JPMorgan Chase & Co chairman and chief executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the US economy could still face a deep and extended recession.

The slump in mortgage and corporate loan markets could bottom out this year, said Mr Dimon, whose bank has largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.

Yet, the economy may face a longer-term challenge even as financial markets begin to function again, in the 'slower burn' of a recession that may rival the severity of the 1982 contraction, he said.

These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last into 2010, he said.

If that happens, he warned, New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to US$900 million by year-end.

He further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profits.

In the current quarter, Mr Dimon said, sub-prime mortgage losses could rise to between US$200 million and US$250 million, with prime mortgages generating about US$100 million in losses.

Loss rates in JPMorgan's massive credit card business are expected to reach 5 per cent in the second quarter and rise to as high as 6 per cent next year, while at the same time, interest and fee revenues decline.

The third-largest US bank also expects to write down 'several hundred million' dollars of auction rate securities, he said. -- Reuters