Credit cards could be key to JPMorgan Chase earnings

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JPMorgan Chase (JPM), the largest U.S. bank by assets, reports its first-quarter earnings early tomorrow morning. Analysts are expecting profit of 32 cents a share, compared with a loss of 28 cents a share last quarter and a 68-cents-a-share profit a year ago. If surprisingly good results from Goldman Sachs (GS) and Wells Fargo (WFC) are any indication, JPMorgan may well exceed expectations, too.

Still, there's sure to be plenty of interesting information tucked into tomorrow's announcement, especially for anyone trying to figure out what the future might hold for financial companies' performance. One area to watch: JPMorgan's credit-card business.

There are 168 million Chase cards out there, the company said in its annual report. And income from cards accounted for nearly a quarter of the company's total revenue last year. Only retail banking accounted for more.

JPMorgan has already said it expects credit card losses to reach seven percent in the first quarter, and it will be interesting to see if rising unemployment, stock market turmoil and declining home values drive that number even higher as people charge more and struggle to pay balances.

For comparison, the charge-off rate, or the percentage of loans written off as uncollectable, for JPMorgan cards was 5.6 percent last quarter and 4.4 percent a year ago.

In a letter to shareholders accompanying JPMorgan's annual report, CEO Jamie Dimon said the company expects card losses to reach nine percent by the end of this year. Given the strong link between jobless rates and credit card losses, and with unemployment nationwide already at 8.5 percent, they could get there even sooner.

That would be bad news for JPMorgan. And they would hardly be alone, since credit rater Moody's Investor Services said earlier this month that card charge-offs reached 8.8 percent in February, a new record. That's bound to affect other big credit card issuers like Citigroup (C) and Capital One (COF).

With U.S. borrowers owing $955 billion in credit card debt according to the Federal Reserve's most recent reading, it doesn't bode well for the economy, either.
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