Chase's Dimon Blames Card Losses on Economy, Card Act

J.P. Morgan Chase, which has 145 million credit card accounts, 50 million credit card customers and $163.4 billion in credit card loan outstandings, lost $2.2 billion on its card business in 2009, according to a shareholder letter signed by chairman and CEO Jamie Dimon. The recession and the new Card Act were the causes of this setback, he said.

"In 2009, in addition to the terrible environment, the U.S. credit card business faced fairly dramatic changes because of a new law enacted by Congress in May," the letter states. "The new law restricts issuers' ability to change rates and prohibits certain practices that were not considered consumer-friendly. These changes alone are expected to reduce our after-tax income by approximately $500 million to $750 million - but this could possibly change as both consumers and competitors change their behavior."

Dimon acknowledges that many of the changes required by the law were appropriate, such as the elimination of double-cycle billing, which the bank had already stopped doing, he says. "However, because the new law makes it harder to raise rates on customers who have become far riskier and because all payments now must go toward reducing users' highest rate balances (vs. lower-rate balances), we and other competitors have had to make some fairly drastic changes in the business," the letter says. The bank has cut back on low promotional rate offers, will no longer offer credit cards to 15% of its highest-risk customers, and has reduced credit line limits. [Still, it's hard to see how such changes ate all credit card profits and resulted in a loss when the typical credit card APR rate is unchanged at around 19% and cutting loose the riskiest customers should have reduced chargeoffs.]

Future credit card growth for J.P. Morgan Chase will come from a slew of new card programs, including Sapphire, Ink, Ultimate Rewards and Blueprint, Dimon said.