JPMorgan Chase & Co. Chief Executive Jamie Dimon talked up the housing market's prospects, downplayed his bank's exposure to Europe and urged parties in Washington to resolve the standoff over the debt ceiling Thursday.
Though prime mortgage losses rose quarter-to-quarter, the housing market should improve within two years, Dimon said in a conference call about the New York bank's second-quarter results.
Foreclosures are elevated because of delays, which has reduced home values, he said. But delinquencies have been falling, he said. "The housing market is not going to drive the economy, the economy is going to drive the housing market," Dimon said. "In reality, the housing market is getting a little bit stronger."
Still, JPMorgan Chase may not be done setting aside money to deal with troubled homeowners. It booked $2.3 billion of mortgage litigation and foreclosure expenses in the first quarter.
"This is going to take time to fully play out, and we could incur additional expenses," Chief Financial Officer Douglas Braunstein said during a conference call with reporters.
JPMorgan Chase has about $15 billion of exposure across Europe. In the worst-case scenario, Dimon said, it would expect to lose as much $3 billion. But Dimon said that is unlikely, and it has not been reducing its exposure to European banks, businesses and government entities. "We're still doing a lot of business in Europe. We hope the Europeans appreciate it," Dimon said.
JPMorgan Chase's second-quarter profit jumped 13% — to $5.43 billion, or $1.27 a share — compared with a year earlier. The latest period included a net 7 cent charge, due in part to costs of foreclosure-related matters. The prior-year period included a net benefit of 12 cents related to a reduction in loan-loss reserves. Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, rose 7% to $27.41 billion.
In lending, wholesale loans rose from the prior and year-earlier quarters while consumer loan balances continued to shrink, though at a slower pace than in the prior quarter. Dimon said runoff of unwanted credit cards was "almost over" and that it would take a decade for $200 billion of unwanted mortgages to run off. Auto loans were down modestly from the prior quarter, which Dimon said reflected how competition has hurt pricing. "All the competitors are back, and I think that's a good thing for America," Dimon said. "It will cut our share, unfortunately."
Dimon described the company's relatively strong investment bank profits of $2.9 billion as no "great surprise" given the strong position the company has established in global debt, equity and investment banking.
Regarding matters in Washington, Dimon said it is "imperative" that the government debt ceiling be raised. Right now, investors are acting from the assumption that it will be resolved, he said.
"No one could tell me with certainty that a default wouldn't cause catastrophe," Dimon said. "Therefore it is irresponsible to take that chance. If it doesn't get resolved you will see severe impact in the markets as we get closer" to the early August default deadline, he said.