JP Morgan Chase Informative - Chase Card Unit’s Weak Q4 Could Extend into 2008
Chase Card Unit’s Weak Q4 Could Extend into 2008
While the writedowns did not come close to Citigroup's staggering total a day before, JPMorgan Chase's weakness seemed focused on the card unit, with the CFO of the company conceding further weakness in cards going into 2008.
Banking giant JPMorgan Chase & Co. Wednesday reported a drop in earnings for the fourth quarter of 2007 largely due to a 23 percent slide in earnings in its Card Services unit which saw provisions for credit loss increase 40 percent. Charge-offs and delinquencies in the credit card unit also climbed higher with the company’s chief financial officer saying card performance will continue to weaken in 2008.
For the quarter, New York-based Chase (NYSE: JPM) reported revenue of $3.97 billion in its Card Services division, up 5.9 percent from the same period in 2006. But provisions for credit card losses soared 40 percent to $1.8 billion, sending earnings for the unit to $609 million, down 15 percent compared to the final quarter of 2006.
Earnings for the card unit were down even more sharply – nearly 23 percent – when compared to the third quarter of 2007.
The card group’s managed net charge-off rate jumped nearly 13 percent in the quarter to 3.89 percent. The 30-day managed delinquency rate increased 11.1 percent to 3.48 percent.
On a conference call early Wednesday, CFO Mike Cavanagh told reporters that the card unit will face more trouble in 2008. He said that credit card spending had slowed for the company in December, portending lower revenue going into the first quarter of this year. He also anticipated that the charge-off rate for cards will climb to 4.5 percent in the first half of this year.
Total charge volume for the fourth quarter increased 2 percent to stand at $95.5 billion. Total managed card loans stood at $157.1 billion at the end of the quarter.
The credit card unit of the bank, which brands its card products under the Chase name, accounted for nearly 22 percent of corporate-wide revenues for the quarter and 20.5 percent of the firm’s earnings.
Overall, JPMorgan reported earnings of $2.97 billion for the fourth quarter, down 34.4 percent from the fourth quarter 2006. Corporate-wide revenues were up 7 percent to $18.3 billion in the quarter, primarily on the growth of the Retail Financial Services and Corporate Services divisions.