The Credit Crunch Continues...

JP Morgan Chase was the first of the major banks to report its earnings last Friday, January 15th. While the overall picture was rosy with the company reporting profits of $3.3 billion, well above Wall Streets expectations.

Normally, this would signal a strong recovery for the banking industry and the economy as a whole. When banks are making money (by lending out capital to both consumers and businesses), generally the entire economy is making money. When you look deeper into the numbers, the picture is not a rosy.

We had been hoping that the banks credit costs/expenses would be leveling off and send a strong signal of recovery. The investment banking division posted virtually all of the companies profits versus any of the companies traditional lending.

* Chase reported steep loses on its credit card loans

* Losses on prime mortgages almost tripled to $568 million compared to a year earlier.

* Total credit losses ticked downward to $7.8 billion from a high of $8.1 billion in the third quarter.

* Most importantly for our industry, wholesale (business) loan portfolios declined 22 percent compared to the fourth quarter last year.

Ralph Cole, portfolio manager at Ferguson Wellman Capital Management, was quoted by Reuters as saying "Consumer credit may be close to a bottom here, but it's not getting better, and people wanted JPMorgan to say it's getting better." JP Morgan's projections for 2010 were not even optimistic with Chief Executive Jamie Dimon saying on the conference call, "We don't know when the recovery is."

The credit crunch is still getting worse, not better. This will continue to drive growth for the Merchant Cash Advance industry out of sheer necessity. Other alternative financial products such as traditional factoring, equipment leaseback, etc. will also benefit from all the demand.

Citibank and Bank of American are due to report this week, and I expect similar results.