JP Morgan Chase warned Friday that it could face further loan write-downs in the fourth quarter if market conditions worsen, as the bank is exposed to roughly $50 billion worth of leveraged loans, CDOs, and subprime mortgages.
“These positions are difficult to hedge effectively and further markdowns could result if market conditions worsen for this asset class,” JPMorgan said in its filing.
“The firm’s CDO and subprime mortgage warehouse and trading positions could also be negatively affected by market conditions during the fourth quarter of 2007,” the bank said.
As a result, more money may need to be set aside to cover additional loan losses, though the firm didn’t reveal how much it intends to mark down during the fourth quarter.
JPMorgan’s CDO exposure is roughly $6.8 billion, while subprime mortgage exposure is about $2.6 billion.
Additionally, the bank said home equity loans may lead to losses of $250 million to $270 million per quarter “over the next few quarters,” a charge-off rate of 1.05 percent to 1.10 percent.
During the third quarter, JP Morgan wrote down $1.3 billion and marked down the value of its CDOs by $339 million.
The bank and mortgage lender said it held $40.6 billion in leveraged loans and unfunded commitments as of September 30th.
Citigroup already warned that it will write down as much as $11 billion in the fourth quarter, while Morgan Stanley anticipates a write-down of up to $6 billion.
Bank of America also warned today that “market dislocations” in the market for collateralized debt obligations will dampen fourth quarter results.
Meanwhile, Barclays denied rumors today that it was due to announce a $10 billion write-down.
Shares of JP Morgan ended the day down 30 cents, or 0.70%, to $42.31, just above their 52-week low of $40.68.