JPMorgan Chase Expects $1.5B Mortgage Writedown for July
Wednesday, August 27, 2008
In a late regulatory filing Monday, U.S. investment bank JPMorgan Chase said it expects to write off $1.5 billion in mortgage-backed securities so far for the third quarter. The July loss exceeds the company's $1.1 billion writedowns reported for the entirety of the second quarter.
In its quarterly filing with the Securities and Exchange Commission (SEC), JPMorgan said its earnings have taken a hit from the turmoil in the credit and housing markets, and that trading conditions have “substantially deteriorated” in the third quarter. “The investment bank continues to be negatively affected by the disruption in the credit and mortgage markets, as well as by overall lower levels of liquidity and wider credit spreads,” JPMorgan said in the filing. “The continuation of these factors could potentially lead to reduced levels of client activity, lower investment banking fees and lower trading revenue.”
To begin the third quarter, JPMorgan terminated all non-agency loan products in its broker channel. Any loans coming from these third-party sources must now be Federal Housing Authority (FHA) -based or salable to government-sponsored enterprises (GSEs). According to yesterday's filing, as of June 30, JPMorgan held an aggregate $19.5 billion in prime and Alt-A mortgage loans, $1.9 billion in subprime mortgages, and $11.6 billion commercial mortgage-backed securities (CMBS).
“These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers,” the company said. Prime and subprime mortgage net charge-offs are expected to continue to rise “significantly” in the second half of the year, with deterioration expected to continue into 2009, JPMorgan said.
Auction-rate Securities Probe
The news comes on the heels of Monday's announcement by New York Attorney General Andrew Cuomo, that he is expanding his investigation into the collapse of auction-rate securities to include JPMorgan Chase and Wachovia Corp., the nation's third and fourth largest banks, as well as Morgan Stanley. As we reported yesterday, like JPMorgan at the start of the quarter, Wachovia also has announced plans to slim down its mortgage lending business.
Cuomo is pressing each of these hand-picked organizations to make amends with investors for overstating the safety of auction-rate securities. According to the Associated Press, last week, Cuomo and the SEC reached settlements with UBS bank to repurchase $18.6 billion in the securities, and with Citigroup, who agreed to buy back $7 billion of the securities. Both companies also agreed to pay fines of $150 million and $100 million, respectively.
In its quarterly filing with the Securities and Exchange Commission (SEC), JPMorgan said its earnings have taken a hit from the turmoil in the credit and housing markets, and that trading conditions have “substantially deteriorated” in the third quarter. “The investment bank continues to be negatively affected by the disruption in the credit and mortgage markets, as well as by overall lower levels of liquidity and wider credit spreads,” JPMorgan said in the filing. “The continuation of these factors could potentially lead to reduced levels of client activity, lower investment banking fees and lower trading revenue.”
To begin the third quarter, JPMorgan terminated all non-agency loan products in its broker channel. Any loans coming from these third-party sources must now be Federal Housing Authority (FHA) -based or salable to government-sponsored enterprises (GSEs). According to yesterday's filing, as of June 30, JPMorgan held an aggregate $19.5 billion in prime and Alt-A mortgage loans, $1.9 billion in subprime mortgages, and $11.6 billion commercial mortgage-backed securities (CMBS).
“These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers,” the company said. Prime and subprime mortgage net charge-offs are expected to continue to rise “significantly” in the second half of the year, with deterioration expected to continue into 2009, JPMorgan said.
Auction-rate Securities Probe
The news comes on the heels of Monday's announcement by New York Attorney General Andrew Cuomo, that he is expanding his investigation into the collapse of auction-rate securities to include JPMorgan Chase and Wachovia Corp., the nation's third and fourth largest banks, as well as Morgan Stanley. As we reported yesterday, like JPMorgan at the start of the quarter, Wachovia also has announced plans to slim down its mortgage lending business.
Cuomo is pressing each of these hand-picked organizations to make amends with investors for overstating the safety of auction-rate securities. According to the Associated Press, last week, Cuomo and the SEC reached settlements with UBS bank to repurchase $18.6 billion in the securities, and with Citigroup, who agreed to buy back $7 billion of the securities. Both companies also agreed to pay fines of $150 million and $100 million, respectively.
