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Banks Seeing Higher Loan Delinquencies

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By MADLEN READ and JOE BEL BRUNO, The Associated Press

Published: January 17, 2008

NEW YORK - The bill for America's excessive borrowing during the housing boom has arrived, and more people are having trouble paying it.

JPMorgan Chase & Co. and Wells Fargo & Co., two of the biggest U.S. banks, Wednesday joined a growing chorus warning that the subprime mortgage mess is just the start of a sweeping lending crisis. Some fear that consumers falling behind on all kinds of loan payments could tip the economy's scale toward recession.

Strapped consumers are having a tough time making payments on credit cards, home-equity loans, even their cars. This has caused three of the top five U.S. commercial banks that have reported damaging fourth-quarter results to set aside about $12.5 billion to cover loan losses - and that number will likely grow as the year wears on.

Problems in the subprime mortgage market are rapidly spilling over into other areas of the economy. No matter what experts call it - recession, slowdown or makings of a depression - it's clear banks are under mounting pressure to be more cautious about lending.

"If consumption growth stagnates, the odds of a recession are incredibly high," said Andrew Bernard, director of the Center for International Business at the Tuck School of Business at Dartmouth. "All the pieces of household financial health are starting to be shakier, especially at the low end."

He and others are paying close attention to what top U.S. banks say about their customers' payment habits. Many view this as an early indicator about where the overall economy is headed, but there are other troublesome signs.

The stock market has had its worst start to the year in three decades, with investors rattled by signs from the Labor Department that unemployment is rising and retail sales are declining. Also, the Commerce Department reported Wednesday that higher costs for energy and food in 2007 pushed inflation for the year up by the largest amount in 17 years.

There was no sign of a turnaround in the final few months of 2007. The Federal Reserve reported that the economy grew at a slower pace in late November and December as credit problems intensified and consumers tightened their spending.

To some, it appears the Fed came to its rate-cutting decision in August a bit too late. Others note the falling dollar and surging oil prices, factors that usually prevent the central bank from easing its monetary policy.

As debate persists about the Fed's timing and the extent of the slowdown, bank executives - who have scrambled to prepare for another tumble in home prices and higher unemployment this year - think academic definitions are beside the point.

"We're not predicting a recession - it's not our job - but we're prepared," JPMorgan Chase CEO Jamie Dimon told analysts after the nation's third-largest bank wrote down $1.3 billion and said profit fell 34 percent.

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