2009 Looks to be Rough Sledding, Some Banks Project

New year, new hope? Not if you’re JP Morgan Chase & Co. (JPM), UBS AG (UBS) or Royal Bank of Scotland Group Plc (RBS), apparently; the three banking beheamoths said in various ways on Tuesday that they expect continued pain from the global financial crisis to exact a toll through 2009. Leading the way, as has tended to be the case throughout the credit crisis, is straight-shooting JP Morgan CEO Jamie Dimon; he spoke to employees in Hong Kong yesterday, Bloomberg News reported, and said the company faces “highly challenging conditions” in 2009. For its part, RBS altogether abandoned its full-year profit forecast, and UBS said “difficult” market conditions will continue to creep into fee income next year. Overall, banks have reported $687 billion of credit losses and writedowns since the start of last year, according to Bloomberg. That number would seem set to rise higher in 2009, if Tuesday’s remarks are any indication. JP Morgan posted an 84 percent drop in third-quarter profit, and its stock has lost 4.3 percent this year (actually, not all that bad, given peer performance). Last month, Dimon said he plans to set aside more money to cover loan losses from the economic slowdown, and he famously has called performance in prime mortgages “terrible” during a second quarter earnings conference call with analysts. Dimon did tell employees he believes the company’s takeovers of Bear Stearns and Washington Mutual earlier this year will eventually prove to be strategically positive–and suggested a strong economic recovery in 2010, as well. RBS was far less positive after ditching its profit forecast over a growing number of bad loans, including a large number of impairments to U.S. commercial and retail loans. Finance director Guy Wittaker said the bank wrote down 1 billion pounds in October, thanks in part to assets linked to failed Lehman Brothers Holdings Inc. and struggling Icelandic banks. He warned that fourth-quarter credit losses will likely be higher than third-quarter losses; RBS CEO Stephen Hester went even further, according to Bloomberg, and warned of a full-year loss. As uncertainy looms, predictions look a bit on the gloomy side. UBS CFO John Cryan told reporters, that conditions are “too uncertain” to give a long-term profitability outlook for his firm, according to Bloomberg. “I don’t think any bank can say what its cost of funds is because markets aren’t standalone yet. And in an economic downturn no one knows what the revenue is going to be,” he was quoted as saying. But he at least sees a brighter 2009 for UBS, saying that the company sees “no reason” it can’t return to a profit early next year. If only analysts were so thusly convinced. Write to Kelly Curran at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.