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J.P. Morgan's Dimon says new laws have hurt his company

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By Tomoeh Murakami Tse
Washington Post Staff Writer
Friday, April 2, 2010

NEW YORK -- J.P. Morgan Chase cut consumer access to credit and canceled credit cards in response to legislation signed into law by President Obama last year, the bank's chief executive Jamie Dimon said. The credit card reform act, which went into effect in February, could cost the bank up to $750 million in annual profits, he added.

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Despite the losses, "we believe that many, but not all, of the changes made were completely appropriate," Dimon said in his annual letter to shareholders, which was released late Wednesday.

Dimon said enacting the bill in the middle of a recession reduced access to credit for some consumers. The act prevents credit card companies from raising interest rates arbitrarily and charging certain fees. It also mandates that all of a cardholder's payments be applied to the balance carrying the highest interest rate.

J.P. Morgan is expected to take a hit of $500 million to $750 million from the new rules, according to Dimon, who added that the bank will no longer offer cards to 15 percent of its customers because they pose too much of a risk in light of the regulations. The bank has reduced credit lines, canceled cards that had not been used for a long time, and substantially reduced offers for introductory rates and promotional balance transfers.

Bank of America has said the new regulations will cost it $800 million.

Consumer advocates, while worrying about banks shifting losses to consumers, largely characterized the changes as a healthy market correction.

"Them being more selective, having higher credit standards and screening their applicants more closely is a good thing," said Curtis Arnold, CardRatings.com founder. "I think they should have been doing that all along. I don't think you can blame the card act on everything."

Dimon's 36-page letter, accompanied by color charts illustrating the bank's performance and pictures of the chief executive, is largely an update of its businesses. But Dimon also spends a considerable amount of time explaining his company's positions on Washington's financial reform efforts while trying to dispel what he suggests are misguided perceptions of the crisis and its aftermath.

Dimon acknowledged the benefits J.P. Morgan had reaped from the government's actions to keep the financial system from unraveling, but called them a "mixed blessing." Not all banks, Dimon said, would have failed without government action, an assumption he blamed for much of the public anger and "some policy recommendations that are meant to punish banks."

The $25 billion the bank received from Treasury's Troubled Assets Relief Program -- which it always has maintained it did not need -- cost the company money, Dimon said, in part because the bank gave the government warrants worth almost $1 billion in exchange for the loan.

"We did not anticipate the anger or backlash the acceptance of TARP capital would evoke from the public, politicians and the media," Dimon said. "I do wish it was possible to distinguish between the healthy and unhealthy banks in a way that didn't damage the success of the program."

Although the bank's participation in another federal program -- a loan guarantee from the FDIC under which J.P. Morgan issued $40 billion in debt -- will save the bank "a significant amount of money" over the next few years, Dimon said he regretted using it because "we didn't need it, and it just added to the argument that all banks had been bailed out."


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