File these under "the bottom is in for financials - NOT"
JPMorgan Expects Banking, Cards to Post Lower Profit
By Elizabeth Hester
May 12 (Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, will post lower earnings from investment banking and credit cards this quarter as the U.S. recession gets under way,Chief Executive Officer Jamie Dimon said.
JPMorgan is seeing lower revenue growth in its credit-card business and will probably have to set aside more money to cover bad loans in that unit, as well as in retail and investment banking, Dimon said today at a conference in New York sponsored by UBS AG.
``The recession is just starting,'' Dimon said. ``I don't know if it will be mild or severe.'' The chances of it being ``pretty bad'' are about one in three, the 52-year-old CEO said.
JPMorgan has posted about $10 billion of writedowns and losses since the beginning of last year, compared with more than $40 billion at bigger rival Citigroup Inc. Dimon said the capital markets crisis sparked by last year's collapse of the subprime mortgage market is about 75 percent over.
In home lending, New York-based JPMorgan expects to lose $200 million to $250 million in the second quarter related to subprime mortgages. Losses in prime mortgages, those made to people with the highest credit rating, could increase to about $100 million for the quarter, the bank said....
IndyMac Bancorp (IMB) Deferral Impact on Alesco Financial Inc. 
PHILADELPHIA, May 12 /PRNewswire-FirstCall/ -- Alesco Financial Inc. , a specialty finance real estate investment trust, announced today that IndyMac Bancorp disclosed this morning that it will defer making the interest payments on IMB's trust preferred securities, including those in AFN's portfolio.
AFN holds a portion of the equity interests in eight collateralized debt obligation, or "CDO," transactions which include trust preferred securities issued by IMB. As previously disclosed, IMB's securities represent an aggregate of 2.43% of the total pool of collateral in those eight CDOs. This collateral represents approximately $2.1 million in aggregate interest payments per quarter to the eight CDOs, of which AFN's proportionate share is approximately $1.5 million or about $0.02 per diluted AFN common share per quarter.
AFN is in the process of reviewing the impact of the IMB deferral on its portfolio. AFN currently expects that IMB's deferral will trigger the over-collateralization tests in five of the eight CDOs for a period of time. Once an over-collateralization test is triggered in a CDO, AFN will no longer receive current distributions of cash in respect of its equity interests in the CDO until sufficient cash flow is paid to senior debt holders in the CDOs to cure the over-collateralization tests.
IMB did not disclose how long it expects to defer its payments. AFN currently expects that, even if IMB does not resume making payment, and assuming no additional deferrals, the five affected CDOs will recommence making equity distributions within three to eight quarters. For the year ended December 31, 2007, and the quarter ended March 31, 2008, the five CDOs which AFN expects to trigger over-collateralization tests contributed $30.1 million, or 36%, and $8.2 million, or 41%, respectively, of AFN's adjusted earnings for such periods. AFN's adjusted earnings will continue to include this income even though AFN will not receive corresponding cash distributions until the over-collateralization tests have been cured. (uh, what if they are NEVER cured? Is this GAAP in action? No reserves, not even a caution in the footnotes on income from CDOs that are taking dives in the market daily? What is this called, Marked-to-Maybe? - Jesse)
At April 30, 2008, AFN had available unrestricted cash of $120 million, including cash generated by previously-disclosed gains on credit default swaps. This cash would be sufficient to allow AFN to maintain its first quarter 2008 dividend rate for the remainder of 2008, even after giving effect to the trigger of the over-collateralization tests described above. The payment of future dividends is, however, subject to the review and approval of AFN's board of directors, and there can be no assurance that AFN's board will determine to maintain the first quarter dividend rate.
As discussed on AFN's earnings call last week, AFN is reviewing a number of strategies for the company, including whether to continue to maintain its REIT qualification. Any change in strategy could impact the level of future dividend payments.
