Long slump may follow crunch: JPMorgan CEO

By Joseph A. Giannone

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) Chairman and Chief Executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.

The slump in mortgage and corporate loan markets could bottom out this year, said Dimon, whose bank largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.

Yet the economy may face a longer-term challenge even as financial markets begin to function again, the "slower burn" of a recession that may rival the severity of the 1982 contraction, he said.

These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last through next year and into 2010, he said.

If that happens, Dimon warned that New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to $900 million by year-end.

Dimon further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profit.

In the current quarter, Dimon said subprime mortgage losses could rise to between $200 million and $250 million, with prime mortgages generating about $100 million in losses.

Loss rates in JPMorgan Chase's massive credit card business are expected to reach 5 percent in the second quarter and rise to as high as 6 percent next year, while at the same time interest and fee revenue decline.