Folks, 24% is a simply breathtaking number for credit card losses, and JP Morgan is saying that is what it may see on its WaMu portfolio. Even keeling-over-and-dying Advanta is up to only 20% losses.
Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.
In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.
At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.
I do wonder at the timing of this announcement, coming on the heels of the press indicating that JP Morgan had gotten quite a steal on the WaMu deal, and could accrete $29 billion of earnings from reversals of writedowns taken at the time of acquisition. That’s a nice little nest egg. I wonder if this comment was to reinforce the notion that WaMu really was a garbage barge, and JP Morgan did a great public service by buying it. A $6+ billion prospective loss is not chump change, but query how much was already marked down.
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Yves,
I’ve been hearing the $29 billion number includes interest income on the loans. Since they bought $150 billion or so this is not a surprising number at all. There’s no way they plan to completely accrete the full amount of write down, in fact all the fundemental factors they used to write down the loans are conservative to what has happened (GDP, UP).
Could it be that 24% is the real world unemployment rate?