Open for business. It may sound prosaic, but in this market, to be able to report the kind of underlying growth, whether in loans, deposits or trading volumes, that JPMorgan Chase can is no small feat. Because it has avoided the writedown carnage of some of its peers and its capital ratios are rock solid, the bank can put its balance sheet to work for clients. And no better time than the present when, finally, customers have to pay up for capital.
JPMorgan has taken its lumps. It must be regretting quite a few of those home equity loans, where the net charge-off rate has spiked up. The bank’s reserving for future losses envisages that rate rising to roughly 1.6 per cent. To put that into some perspective, a ‘normal’ rate would be around 30 basis points. JPMorgan’s book is very big at over $90bn. Like its peers, JPMorgan will learn the lessons of this particular bust. One is where there are problems, they tend to be worse when loans are not originated by the bank but by brokers. Another is that credit scores cannot be relied on as a key measure, when house prices go mad.
