JPMorgan Chase yesterday reiterated its gloomy assessment of the financial health of US consumers, saying that the deepening economic woes would cause further losses in its retail banking and credit card units.

The downbeat prediction by JPMorgan, which has done better than most rivals during the turmoil, will increase fears over the performance of other lenders with large consumer businesses, such as Citigroup, Bank of America and Wells Fargo.

JPMorgan's view, which echoes comments made by its executives last month, underlines the challenges faced by the new US administration as the slowing economy and the financial crisis take a heavy toll on consumers.

In a regulatory filing, JPMorgan said its provisions for credit losses in the consumer division "could increase substantially" in the coming months.

In the first nine months of the year, JPMorgan set aside $11.5bn - three times more than the same period in 2007 - to cover potential losses arising from its consumer loan portfolio.

"Management expects continued deterioration in credit trends for the consumer portfolios, which will likely require additions to the consumer-loan loss allowance in the fourth quarter of 2008," the filing said.

JPMorgan warned that charge-offs - the percentage of loans that cannot be recovered - are expected to rise in the last three months of 2008 and the early part of 2009 in both its mortgage and credit card businesses.

The bank said its card business was expected to be particularly hit over the next few months, with charge-offs rising to as much as 7 per cent by the end of the year. The figure could be higher due to the inclusion of the card portfolio of Washington Mutual, the regional lender recently acquired by JPMorgan.

"These charge-off rates could increase even further if the economic environment continues to deteriorate," the filing said.

Charge-offs in JPMorgan's credit-card portfolio stood at 5 per cent of total loans in the third quarter of the year. This was in line with the levels reported by other lenders and well above historical standards.

The US banking industry has suffered credit card charge-offs of more than 7 per cent only once in the past 23 years, in the first quarter of 2002, according to Federal Reserve data.

JPMorgan said both the card services business and its asset management units were likely to suffer from the increased costs of funding caused by the recent paralysis in credit markets.

Source:http://www.ft.com/cms/s/0/3e25de66-ad34-11dd-971e