JP Morgan warns credit crisis could continue into next year

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The Independent Online

Jamie Dimon, the chief executive of JPMorgan Chase, warned that tough conditions for the finance industry would continue for the rest of the year and possibly longer, but he insisted his bank was going to emerge stronger from the credit crisis.

Having already stepped in to take over collapsed rival Bear Stearns last month, Mr Dimon said that JPMorgan would also continue to grow its consumer lending businesses, despite mounting loss provisions and signs that other banks are cutting back in this area.

Bear Stearns was turning out to be a better business than thought when, on a panicky Sunday afternoon in March, Mr Dimon had been corralled into a takeover by the Bush administration and the Federal Reserve, he said yesterday. It is on course to generate $1bn (£507m) of extra profit for JPMorgan, when a restructuring and integration is complete.

Some 14,000 Bear Stearns employees, including 1,500 in London, will learn their fate before the end of June, he promised. "There's a lot of talent there," Mr Dimon said, adding that JPMorgan had instituted a hiring freeze so that some displaced Bear employees could be moved to vacancies at its new parent.

JPMorgan itself posted a 50 per cent fall in net income in the first three months of the year, but that still ranked it among the best performances of the financial sector and it outstripped Wall Street's depressed expectations.

The company set aside $4.4bn to cover losses on mortgages and other loans, four times as much as in the same period a year ago. Mr Dimon said the bank had tightened its lending rules to screen out the least creditworthy, but was not scaling back lending substantially.

JPMorgan wrote down the value of leveraged loans, made to fund private equity buyouts, by $2.6bn in the quarter but losses on mortgage derivatives were not large enough to be disclosed as a separate item. Mr Dimon's decision to dramatically scale back its mortgage trading business before the market meltdown has shielded JPMorgan from the worst of the industry's losses and given the company the balance sheet strength to step in to take advantage of rivals' weakness.

It has also made Mr Dimon one of the most sought-after soothsayers on the industry. His view on the US housing market was that there is no sign of an end to falling prices, and he predicted continuing stress on his company and others from the weak economy and the credit crisis, "possibly through the remainder of the year, or longer".