JPMorgan Announces $700 Million Loss For Third Quarter

Recently, major financial company JPMorgan Chase & Co’s credit card unit announced a loss of $700 million for the third quarter. This drop from a $292 million profit last year indicates that the turnaround of the U.S. economy may be quite a ways away, despite recent announcements.

This loss announcement from a major credit card company in the U.S. is an indication that the nation’s consumers are still struggling to get a decent hold of their finances. Credit card companies are also looking forward to the prospect of more credit card holders being late on their payments as the holiday approaches and consumers, strapped for cash, increase their credit card spending.

The coming credit card legislation is also another major concern for credit card companies. These credit card companies foresee that the sweeping changes that the new credit card legislation will introduce are going to have a large negative effect on their profits.

In an attempt to stem their losses, credit card companies are cutting down available credit and are introducing tougher credit lending measures. For instance, JPMorgan’s third quarter branch credit card sales dropped down to 16% compared to a year ago. Compared to the prior quarter, it was down by 18%.

JPMorgan’s card services bet loss of $700 million was mainly caused by the increasing volume of credit card loans going bad and increasing reserves. At the moment, the company is busy securing more funds to guard against future losses. JPMorgan’s recent acquisition of Washington Mutual and their wider loan spreads resulted in a net revenue of $5.2 dollars, a 33% increase from one year ago, helping to offset the company’s losses.

Still, JPMorgan is facing quite a challenge in their credit card services. Credit card borrowers who lagged by a month on their credit card payments increased by 5.38% during the third quarter, from a 5.27% increase in the second quarter and a 3.69% increase from last year. For credit card companies, rising delinquencies are very definite red flags as they are a key gauge for upcoming losses. Higher delinquencies force credit card companies to reserve more capital to offset potential losses. Credit card companies will also have to deal with writing off the loans of clients who ultimately cannot pay for their debts.

As a result of the economic slowdown and the continuing unemployment rise, credit card holders are also cutting back on spending. As a result of this, JPMorgan Chase, as well as other credit card companies is seeing a slump in earnings from credit card transactions.