Foreclosure mess clouds report

NEW YORK - The last thing that top executives at JPMorgan Chase & Co. wanted to talk about Wednesday was the raging foreclosure mess.

"We're not going to say too much about this today, other than the comments that we're giving you here," Chief Financial Officer Douglas Braunstein said on a conference call to discuss the company's earnings.

That was wishful thinking.

Instead, analysts and investors wanted answers from Braunstein and CEO Jamie Dimon on the rapidly escalating foreclosure fiasco, which overshadowed an otherwise strong earnings report from the bank. JPMorgan's profits increased 23 percent to $4.42 billion.

JPMorgan's earnings came out on the same day that officials from all 50 states announced a joint investigation into accusations that lenders used flawed documents to foreclose on thousands of homeowners. JPMorgan, a big player in the mortgage market, said it was expanding its review of foreclosures from 23 to 41 states, and doubling the cases under review to 115,000.

"We're not evicting people who deserve to stay in the house," Dimon declared. Dimon said he was hopeful that it would take three to four weeks for his bank to review the documents and get the foreclosure process back on track. However, he worried that "if it went on for a long period of time, it will have a lot of consequences, most of which would be adverse on everybody."

The reluctance of JPMorgan Chase's executives to talk much about the foreclosure crisis is understandable. The latest crisis comes just as anger over the U.S. bailout of large banks was fading. The allegations of shoddy work and document fraud on thousands of foreclosures that led to people being evicted from their homes puts banks back on the hot seat.

"Bank executives have been unwilling and unable to imagine the worst that could happen," says Nancy Bush, bank analyst for NAB Research.

JPMorgan Chase, Bank of America Corp., and GMAC, recently halted foreclosures in multiple states after evidence emerged of fraud in the documentation process.

Though Dimon brushed it aside, at least two analysts expressed concern over the $1.3 billion increase in JPMorgan Chase's litigation reserve to fight lawsuits, including those for mortgage-related matters.

In its third quarter, JPMorgan Chase posted a 23 percent gain in net income, mostly because it set aside less money to cover losses from bad loans. Revenues fell 15 percent to $24.3 billion in a sign that tighter regulations and a sluggish economy are taking a toll.

New York-based JPMorgan Chase & Co., the first major bank to report third-quarter results, earned $1.01 per share in the three months ending in September, beating anlaysts' expectations. It earned $3.59 billion, or 82 cents, during the same period last year.

JPMorgan Chase is the nation's No. 2 bank by assets and holds a vast portfolio of consumer and business loans, making it a bellwether for the U.S. economy.

A closer look at its results suggests that the degree of suffering is starting to abate for Americans struggling through the longest recession since the 1930s. In a positive sign, JPMorgan said fewer of its customers were late on payments on mortgages and credit cards.

That enabled JPMorgan Chase to set aside $1.55 billion to cover for losses its expects from mortgages and auto loans, less than half the $3.99 billion it recorded in the same period a year ago. Similarly, the bank set aside $1.63 billion for expected losses in its credit-card business, down sharply from $4.97 billion last year.

by Pallavi Gogoi Associated Press Oct. 14, 2010 12:00 AM



Foreclosure mess clouds report