Bank One Corp. sold more than $500 million of nonperforming loans in the first half to streamline costs, chief executive James Dimon told investors, and it plans to keep shedding problem loans if the price is right.
The Chicago company sold $375 million of loans in the first quarter and $147 million in the second as a way of "getting our hands around credit," Mr. Dimon said late Monday at the Merrill Lynch Banking and Financial Services Conference.
"We are trying to set the stage," he said. "We have to get the company performing well before we can spread our wings and grow the company."
Bank One's nonperforming loans grew from $730 million in the second quarter of 2000 to $1.05 billion during the same period this year. Loan-loss reserves increased from $2.9 billion to $4.2 billion.
The loan sales are "purely discretionary" and are based on economics, Mr. Dimon said. He would not reveal the price the bank received; it has charged off $80 million in loans as a result of loan sales.
By selling the loans, Bank One can reduce its need for reserves. "We are recognizing our losses and problems immediately," Mr. Dimon said. "The culture is changing."
Christopher Marinac, an analyst with SunTrust Robinson Humphrey, said periods of high liquidity in the markets are important in determining whether to sell the loans.
"If you look at the signals [second-quarter earnings results] given in July, they were looking at cold-blooded economics," Mr. Marinac said. "It was that simple then, and it's the same analysis now." Selling nonperforming loans "is a lever they can pull to limit their risk."
Mr. Dimon also said his company hopes to complete conversions of its major loan and deposit systems be the end of 2002 - a year earlier than estimated earlier. Bank One is converting five deposit systems into one and its nine loan systems into two, he said. The conversions are expected to reduce expenses by $200 million when completed.
The Merrill Lynch conference had been scheduled to continue Tuesday and Wednesday at the Pierre Hotel in midtown Manhattan, but was suspended as James E. Rohr, president and chief executive officer of the PNC Financial Services Group Inc. was making his presentation. When news of the first air strike hit the conference, bankers and investors took a break to check messages at their offices and listen to news reports. Mr. Rohr then took the podium for his presentation, but organizers quickly decided to halt the conference after learning of a second air strike.
Mr. Dimon left New York Monday night, but several of the executives were stuck in the city, waiting for air travel to resume such as Jackson Moore, chief executive at Memphis-based Union Planters Corp., who planned to fly back to Memphis in the bank's corporate jet.