Chase Dumps Subprime Loans

“Subprime will continue to have problems,” Dimon said this week at an investor conference held by Citigroup Financial in New York. “Losses are only going to go up, including ours.

“But at the end of the day we’re an economic animal … and I’d have no problem buying $10 billion more (in subprime loans) if we can buy at a discount,” Dimon said in a recorded conference call.

For now, however, Chase is shedding inventory. Dimon said the company has sold off most of its subprime loans.

Chase still holds about $13.2 billion of subprime mortgages but has reduced the overall volume of its portfolio from 72 percent to 65 percent. Dimon also said the company is selling $4.5 billion of subprime loans.

Dimon went so far as to suggest that the problems in subprime may be signaling a recession.

“We really see something taking place that looks like a recession,” he said.

The company’s 30-day delinquencies on subprime loans has increased from just over 2% in March of 2005 to approaching 8% in the fourth quarter of last year.

In the fourth quarter Morgan had net charge-off rates grow 0.6 percent from 0.2 percent in the fourth quarter of 2005, according to a presentation made at the investment conference.

“Continued weakness in subprime expected,” Morgan said in its written presentation to investors. “Subprime mortgage loss severities have begun to increase and 2006 vintage delinquency is higher than 2005 and 2004 at similar loan ages.

In its Jan. 17th earnings report Morgan said it increased loan loss provisions by $104 million to $262 million “reflecting … some deterioration in subprime mortgages.”

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: PatCrowley@MortgageDaily.com