Chase CEO sees no profit in bank’s credit cards this year

creditcard(San Francisco Business Times) J.P. Morgan Chase CEO Jamie Dimon says he doesn’t anticipate a profit in its huge credit card business this year as unemployment takes a toll on the business.

“We do not expect 2009 to be a good year for the credit card business. In fact, we do not expect to make any money in card services this year,” Dimon said in his 29-page letter to shareholders.

Chase (NYSE: JPM) became one of California’s largest banks last year when it acquired the failed banking operations of Washington Mutual. As part of that transaction, the bank absorbed WaMu’s credit card operations that were once the San Francisco-based Providian Financial Corp. Although Providian’s roots go back to providing credit cards to those with tarnished credit records, Dimon told the San Francisco Business Times earlier this year that he has no interest in extending credit cards to the subprime market.

In its credit card business last year, Chase enrolled 600,000 troubled borrowers into payment programs, and the bank anticipates that figure will be higher this year.

“Looking ahead, we expect losses will continue to increase from 5 percent to 9 percent, essentially tracking the rate of unemployment,” Dimon said. The bank boosted reserves for credit card losses from $3 billion to $8 billion.

But by the time Dimon got close to the end of his shareholder’s letter, he had already become more pessimistic on the outlook for credit card losses. (Perhaps not a typo but a reflection of how bankers are trying to get their arms around their loan losses as the recession persists.)

“The severity of this recession also could have a dramatic impact on credit card losses,” Dimon said. “We now expect a 9 percent unemployment rate to lead to charge-offs of higher than 9 percent.”

He noted that in the past, the bank would have expected 9 percent unemployment to trigger credit card losses of 7 percent or more. March unemployment came in at 8.5 percent, the highest level since 1983.

“The recession will ripple through and affect all of our consumer and commercial credit,” Dimon said.

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