Dimon sees cost of loans rising with reform

By Reuters
Posted Sep. 14, 2010 at 1:57 p.m.

New capital rules are expected to increase bank loan prices for customers and may drive some to seek financing from non-bank financial institutions, JPMorgan Chase Chief Executive Jamie Dimon said in an investor presentation Tuesday.
Like its major rivals, the second-largest U.S. bank by assets is trying to juggle compliance with a plethora of new global and U.S. regulatory reforms while trying to speed its recovery from the financial crisis by rebuilding its main business of lending.

“I’m not complaining,” said Dimon, but he told the audience at a conference in New York that he believes recent reforms have strengthened and not simplified the regulatory system.

In all, the changes are complicated but “manageable,” Dimon said. The bank expects to be able to find ways to mitigate new costs in many of its businesses, though this may take time, he said.

Lending costs will increase, depending on the type of customer and loan, Dimon said. Some companies may no longer go to banks for loans, he added.

JPMorgan may look to raise unsecured and secured term debt and take other measures to increase its liquidity buffer under the new rules, the presentation said.

The bank expects its capital position to be strengthened by earnings and the need for lower loss reserve levels over time. JPMorgan does not intend to sell shares to meet the new Basel capital requirements, according to the presentation.

JPMorgan separately said costs it faces from U.S. reforms will force it to transfer some of its derivatives business to a non-banking subsidiary. It expects this unit to have capital requirements of about $6 billion, according to the presentation.

The New York-based bank said it will also have to transfer some of its proprietary trading from its investment bank to its asset management business.

While  mortgage losses are easing, the bank said, it expects to retain a high number of foreclosed properties on its books through the beginning of next year. JPMorgan said it expects its foreclosure inventory to begin to decline from next year through 2013.

JPMorgan shares were down 63 cents, at $40.52, in afternoon trading.

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