Credit crunch hits US bank profit

Bank profits have been hit hard by the credit crisis

Profits at the US banks JP Morgan Chase and Wells Fargo have slumped due to the global credit crisis - but not by as much as Wall Street had feared.

JP Morgan, which bought bankrupt rival Washington Mutual, saw third quarter profits fall 84% to $527m (£302m).

Wells Fargo saw its third quarter profits fall 23% to $1.64bn (£940m).

Meanwhile, US regulators cleared Bank of America's purchase of Merrill Lynch for $34.9bn, part of the restructuring of US banks due to the credit crisis.

Merrill Lynch agreed to be taken over just days after its fellow investment bank, Lehman Brothers, went bankrupt.

'Turbulent environment'

Besides JP Morgan Chase and Wells Fargo, other banks will also be reporting their third quarter profits figures this week.

Despite the dramatic profits falls, the results from both banks were better than many analysts had feared.

JP Morgan Chase reported quarterly earnings of $527m (£299m), down from $3.4bn in the same period last year.

The bank also wrote off $3.6bn in bad US mortgage-related loans and investments.

Since the US mortgage crisis emerged last year, the bank has written off $18.8bn in investments and assets.

Chief executive Jamie Dimon said with the uncertain economic outlook: "It is reasonable to expect reduced earnings for our firm over the next few quarters".

But he insisted the bank was "well-positioned to handle the turbulent environment".

Profits hit

Following its acquisition of Washington Mutual's assets on 25 September, JP Morgan Chase is now the biggest US bank in terms of bank deposits.

Wells Fargo also beat Wall Street's expectations, although its earnings were markedly down compared to its $2.17bn during the same period last year.

Wells Fargo's profits were hit by write-offs of investments in the troubled US mortgage giants Fannie Mae and Freddie Mac, and Lehman Brothers.

The bank is currently buying its rival Wachovia, which it won after a hostile battle with Citigroup, and said it expected to complete this by the end of 2008.