A Check on Credit: BAC and JPM

michelangelo — Tue, 27 Oct 2009 01:46:35 +0000

Bank of America

	3Q 2009	2Q 2009	3Q 2008
Net Charge Offs	9,264	8,701	4,356
	4.13%	3.64%	1.84%
Non Performing Assets	33,825	30,982	13,576
	3.72%	3.31%	1.45%
Allowance for Loans and Lease Losses	35,832	33,785	20,345
	3.95%	3.61%	2.17%

JP Morgan

	3Q 2009	2Q 2009	3Q 2008
Net Charge Offs	8,071	7,683	3,357
	4.85%	4.51%	2.24%
Non Performing Assets	20,362	17,517	9,520
	2.72%	2.17%	0.91%
Allowance for Loans and Lease Losses	31,454	29,818	19,765
	4.74%	4.33%	2.56%

Provision for Credit Losses

	3Q 09	2Q 09	1Q 09	4Q 08	3Q 08
BAC	11,705	13,375	13,380	8,535	6,450
JPM	8,104	8,3031	8,596	7,313	5,787

Note: values are in millions of dollars.

Looking at 3Q 2009 earnings releases from JPM and BAC, it’s noticeable that despite improving economic condition, credit costs remain high and continue to negatively affect earnings. Profits from trading, investment banking and brokerage fees are offset by losses related to deteriorating credit quality. Provisions for credit losses remain elevated compared to 3Q 2008 levels as the consumer continue to remain under stress, but the rate of increase is diminishing. Part of the credit losses are attributable to growth in loans (in 3Q 09, BAC extended 183.7 B in credit) and part to weak economic conditions in US and around the globe. Non-Performing Loans, or loans that are at least 60 days past due, and Allowance for Loan Losses, or an estimate of uncollectible loans, continue to climb as a percentage of total loans (table above).

The business segments that are negatively impacting banks the most are:

Card services Delinquencies and losses related to credit card loan portfolio continue to climb as the consumer spend less on average and unemployment remain high.

Commercial and residential lending High unemployment rates and home prices declines continue to drive higher estimated losses related to the consumer and commercial lending.

NOT AN ANALYST » Credit

A Check on Credit: BAC and JPM