JPMorgan’s strength

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The end is no longer nigh – at least according to the leaders of Wall Street’s remaining independent banks. In recent days, they have lined up to say the worst of the credit market turmoil is behind us. JPMorgan Chase has a more conservative line. Jamie Dimon, chief executive, expects “the economic environment to continue to be weak and for the capital markets to remain under stress”.

Why the difference? Largely because of the business Mr Dimon runs. Pure Wall Street firms have come back from the edge of the abyss that swallowed Bear Stearns, largely thanks to the Federal Reserve. So, comparatively, things are looking up – even though they still face the painful task of resizing their businesses for weaker profitability ahead.

JPMorgan never took the scale of hits experienced by others. Still, while pure Wall Street firms take their mark-to-market pain immediately, JPMorgan also faces a stream of provisions in its traditional lending business. One of the most striking figures in Wednesday’s results was the jump in prime mortgage delinquencies. Having ticked along below 1 per cent until the second half of 2007, they have jumped above 3 per cent. Admittedly, that includes Alt-A borrowers. And JPMorgan’s exposure is limited because it passes many of its prime loans on to the likes of Fannie Mae and Freddie Mac. But it is a reminder of how deep the housing problems are. With extreme house price falls in some areas, even prime borrowers who put up big deposits are facing negative equity.

JPMorgan’s balance sheet looks well positioned to ride out a weak economy. Citigroup, with more big writedowns to come in its investment bank, coupled with heavy exposure to US consumer lending, faces a far less comfortable ride.

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