Nov. 4 (Bloomberg) -- JPMorgan Chase & Co., UBS AG and Royal Bank of Scotland Group Plc, three of the world's biggest banks, said they expect further pain from the global financial crisis.

JPMorgan Chief Executive Officer Jamie Dimon, speaking to employees in Hong Kong yesterday, said the company faces ``highly challenging conditions'' next year. UBS of Zurich predicted today that ``difficult conditions'' will continue to weigh on fee income. RBS, based in Edinburgh, scrapped a profit goal for 2008.

Banks have reported $687 billion of credit losses and writedowns since the start of last year as the worst U.S. housing slump since the Great Depression battered credit markets. UBS, RBS and New York-based JPMorgan, the bank called upon to rescue Bear Stearns Cos., have all been forced to take state funds as governments seek to restore confidence in the financial system.

UBS, the biggest Swiss bank, said worsened financial market conditions this quarter ``will continue to affect our clients' assets, and therefore our fee-earning businesses.'' RBS CEO Stephen Hester said rising loan defaults and writedowns may lead to a full-year loss at Britain's second-largest bank.

``The global situation does not look good,'' said Peter Hahn, a fellow at London's Cass Business School and a former managing director at Citigroup Inc. ``UBS is retrenching, RBS is unlikely to be in all of the same businesses going forward and JPMorgan has so far used the financial crisis as an opportunity to expand. We are seeing the financial excess being squeezed out of the financial services sector.''

Rising Loan Losses

UBS rose 0.5 percent to 19.04 francs by 4:21 p.m. in Swiss trading, valuing the bank at 55.2 billion francs ($47.7 billion). RBS dropped 6.4 percent to 61 pence in London. JPMorgan rose 2.8 percent to $41.85 in New York.

Speaking to 550 employees in Hong Kong, Dimon also said there may be a ``strong recovery'' in 2010, according to a document seen by Bloomberg News and confirmed by a person in attendance. The 52-year-old CEO predicted the acquisitions of Bear Stearns and Washington Mutual Inc., both victims of the credit crunch, will help JPMorgan's performance in the ``longer term.'' JPMorgan spokesman Ray Bashford declined to comment.

Wall Street executives, including Merrill CEO John Thain and Citigroup Inc. Chief Financial Officer Gary Crittenden, have signaled economic contraction will weigh on profits into 2009. Dimon said last month he will set aside more money to cover loan losses and predicted the slowdown will last longer and strike deeper than many had previously expected.

JPMorgan, the largest U.S. bank by market value, posted an 84 percent drop in third-quarter profit, and Dimon forecast on Oct. 15 earnings will decline in coming quarters. The stock has lost 4.3 percent this year.

Fee Income Affected

UBS, the European bank with the biggest losses from the global credit crisis, agreed last month to a $59.2 billion aid package from the government and central bank that will split off risky assets. Switzerland's largest bank is seeking to halt client redemptions, which amounted to 83.6 billion francs at its money-management units in the third quarter.

UBS plans to transfer as much as $60 billion of debt assets to a fund backed by the Swiss National Bank, leaving it with ``essentially zero'' risk related to U.S. subprime, Alt-A, prime, commercial real estate and mortgage-backed securities, as well as student loan-backed securities and reference-linked notes, CEO Marcel Rohner said last month.

Risky assets have led to $48.6 billion of losses and writedowns at UBS since the start of last year.

`Too Uncertain'

Since the rescue plan was announced, there have been ``encouraging signs'' for net new money flows, Chief Financial Officer John Cryan told reporters on a conference call today.

Even so, clients may keep removing funds for some time as part of a ``general trend of deleveraging,'' he said. ``That manifests itself in clients effectively selling investments and withdrawing proceeds to pay down debt.''

The Swiss bank reiterated that net income totaled 296 million francs in the third quarter, buoyed by 2.2 billion francs of gains on its own debt and a tax credit.

In the fourth quarter, a charge of about 4 billion francs from the transfer of assets will probably result in a net loss. Rohner, 44, said last month that the bank expects a profitable 2009 and plans to pay a dividend for that year.

``It's too uncertain'' to give a long-term profitability outlook for the bank, Cryan said in an interview. ``I don't think any bank can say what its cost of funds is because markets aren't standalone yet. And in an economic downturn no one knows what the revenue is going to be.''

More Writedowns

RBS Finance Director Guy Whittaker said the bank wrote down 1 billion pounds in October against assets tied to Lehman Brothers Holdings Inc. and Icelandic banks. It took 1.4 billion pounds ($2.2 billion) of markdowns before accounting adjustments in the third quarter and warned that fourth-quarter credit losses probably will be higher.

CEO Hester, 47, said the latest charges, on top of 5.9 billion pounds in the first half, show the bank has too much risk and may have a full-year loss. The financial crisis has triggered rising loans defaults in the U.K., U.S. and Asia, the bank said in a statement. The U.K. will own as much as 60 percent of RBS unless investors buy some of the 20 billion pounds of stock it plans to sell later this year.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.netJon Menon in London at jmenon1@bloomberg.net

Last Updated: November 4, 2008 10:23 EST