JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon Admits Home Mortgage Losses Still Ahead for the Company

At the Goldman Sachs U.S. Financial Services conference in New York, JPMorgan Chase & Co.’s (NYSE:JPM) CEO Jamie Dimon stated there will be more losses at the bank next year in its residential mortgage business.

While Dimon said there were some general signs that some stability was returning to the home loan market, it’s far from sure that this will continue on into 2010. Many Alt-A loans are due by law to be re-set, and that could cause significant losses at the company. Those loans are expected to peak sometime in the first half of 2009.

Dimon added if the economy continues to struggle, the bank may have to increase its reserves even more to protect itself and its shareholders.

Over the next 12 months, JPMorgan could experience losses as high as $1.4 billion on its home equity loans alone, in contrast to the $1.1 billion in losses in the third quarter.

Other areas of concern for loan losses entail the subprime market, where the bank could increase in losses from $422 in the third quarter to $500 million. The bank could also suffer large losses in the prime mortgage markets, according to the company presentation, which could grow up to $600 million from the $525 million in last years’ third quarter.
 
Everyone knows there won’t be a recovery without a stable residential market or creation of jobs; and both look like they’re not going to recovery any time soon, no matter how the government and its economists spin it.

Also during the presentation, Dimon said the company’s home lending portfolio could fall by 10 percent to 15 percent if things continue on as they are now. That would bring the value of the portfolio to about $240 billion for 2010, and down to $200 billion in 2011. It is projected if that were to occur, net interest income would fall by close to $1 billion. 

Even with major banks growing their profits on the investment side, (other than Morgan Stanley), this may seem like a minor issue. But for the overall economy, investment banking doesn’t generate jobs or much else, other then strengthening the business itself. It would of course depend on what the capital was being invested in, but it won’t be a factor in helping things turn around or job creation.

Banks have been slow to admit they aren’t anywhere near out of the woods in home mortgage losses, and they don’t talk much any longer about the mandated mortgage re-sets now upon them, and which will escalate in the first half of 2010.

In that sense it’s good to hear Dimon and JPMorgan admit that the very suspect “stability” being touted is far from being a certainty going forward into the new year. This doesn’t even take into consideration the commercial real estate property default debacle about to be unleashed in the second half of 2010.