JP Morgan And Merrill Lynch: The Latest Sub-Prime Victims

The sub-prime crisis continues to notch up victims. On Wednesday JP Morgan announced that it was writing off £662m from its mortgage portfolio due the continuing drop in US housing prices.

The bank also said that it was preparing for a ‘substantial’ downturn in the US economy in 2008. JP Morgan’s profits in its credit card business suffered a 15% drop, which indicates that the credit crunch is hitting consumer spending – and that accounts for around 75% of US economic output.

The gloomy outlook from the bank helped to push the FTSE 100 index down again.

The second biggest US mortgage lender Wells Fargo set aside £714m to cover anticipated defaults on American home loans, and the company assessed the state of the US housing market as ‘very weak’.

Today investment banking giant Merrill Lynch said it had been forced to write down a total of $22bn (£11.2bn) of sub-prime mortgages are related assets, which meant that the bank suffered its first annual loss since 1989. The loss was $8.6bn, on the back of profits in 2006 of $7.1bn. Although Merrill took a writedown of $11.5bn in the final quarter, it was less than the $25bn some experts had feared.

Citigroup revealed a $24bn writedown on Tuesday, the losses contributing to the worst three months that Wall Street has ever seen.

Merrill’s chief executive, John Thain, new into the job last October, said: “While the firm’s earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm’s liquidity and balance sheet.” He continued: “A great majority of Merrill Lynch’s key businesses delivered record results in 2007, and as I look ahead to 2008, the firm is intensely focused on continuing this momentum and delivering growth and increased profitability.”

Meanwhile the sub-prime crisis continues to echo in boardrooms around rthe world