Nov. 12 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the U.S. recession ``could be worse'' than the credit-market crisis that brought lending to a standstill.

Rising unemployment and the process of de-leveraging by financial companies may bring on a ``deep'' recession in the U.S., Dimon, 52, said today at a Merrill Lynch & Co. conference in New York. ``We are prepared for a difficult environment.''

JPMorgan, the largest U.S. bank by market value, will add about $2.4 billion in reserves to cover bad loans in the fourth quarter as losses on credit cards and home loans continue, Dimon said. U.S. Treasury Secretary Henry Paulson today scrapped plans to use government funds to buy troubled assets in favor of using the money to relieve pressure on consumer credit.

The U.S. unemployment rate rose to 6.5 percent in October, the highest level since 1994, as companies slashed payrolls, the Labor Department said last week. Auto sales plunged 32 percent, manufacturing contracted at its fastest pace in 26 years and consumer confidence fell by the most on record during the month.

Still, Dimon said there is reason for optimism about prospects for the economy. ``We're not running this company like we have a Great Depression,'' he said. JPMorgan continues to invest in businesses that benefit clients, including advisory work and raising money for corporations, he said.

Shares Decline

Shares of JPMorgan, which have dropped 21 percent this year, fell $1.78, or 4.9 percent, to $34.57 in composite trading on the New York Stock Exchange at 4:01 p.m.

Goldman Sachs Group Inc., where Paulson was CEO before joining the Bush administration, predicted the deepest economic contraction since 1982 for the fourth quarter. The New York- based firm said the jobless rate may jump to 8.5 percent by the end of next year.

``We're focused on strengthening that financial system and getting lending going,'' Paulson said during a press conference in Washington today.

Banks and securities firms worldwide have taken $929 billion in losses, writedowns and credit provisions since the beginning of 2007, according to Bloomberg data. Firms have raised $819 billion in capital to offset the losses.

``We think the economy could be worse than the capital- markets crisis,'' Dimon said. ``You really need to separate them because they have completely different effects on our businesses and on most businesses.''

Consumer Loans

Dimon said JPMorgan continues to lend money to consumers. Loans to some types of corporate clients and in the investment bank have increased by $8 billion since the end of the third quarter, he said. Loan balances across the business lines have climbed $24 billion.

The bank also expects to post a $500 million loss on private-equity investments during the quarter, Dimon said.

JPMorgan announced a plan last month to assist 400,000 families with $70 billion in troubled mortgages in the next two years. An additional 250,000 families with $40 billion in mortgages have already been helped under existing loan- modification programs.

JPMorgan is the third-largest mortgage originator in the country with 13.6 percent of the market as of Oct. 31, according to Inside Mortgage Finance data. The lender has reduced volume 17 percent compared with an industrywide contraction of 56 percent since the beginning of 2007.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: November 12, 2008 16:18 EST