Moody's Investor Services lowered its outlook on JPMorgan Chase ( JPM) to negative from stable late Wednesday, as the rating agency expressed concern about its credit portfolio amid the worsening economy.

Moody's said it expects JPMorgan Chase "will continue to be saddled by sustained high provisions and credit costs" through 2010 as the global recession continues. The company's "capital generation could be modest at best," Moody's said.

Moody's expects JPMorgan will not be able to generate "sizable" amounts of capital because of the general recessionary environment combined with continued capital market illiquidity that "could continue to dampen investment banking revenue, which remains an important revenue contributor."

It also says the ailing housing market and higher unemployment will result in higher loss estimates in the bank's residential mortgage portfolio and in its credit card portfolio.

"In particular, it has become more likely that additional charges will need to be taken against legacy WaMu's $145 billion residential mortgage portfolio beyond JPMorgan's $30 billion marks taken against that portfolio," Moody's says.

Still the company enters 2009 with a tier-1 ratio of 10.2% and an adjusted tangible-equity ratio of 7.9%, according to Moody's.

JPMorgan Chase, along with Wells Fargo ( WFC) and smaller banking outfits, BB&T ( BBT) and PNC Financial Services ( PNC) have held up relatively well as the credit crisis lingers and the economy worsens.

Moody's had downgraded in January the company's senior debt to 'Aa3' from 'Aa2.' At the time is also lowered its rating on the bank subsidiary's financial strength by one notch to 'B' as well as its deposit ratings to 'Aa1' from 'Aaa.'

The ratings continue to reflect JPMorgan Chase's "comparatively strong capital position, which is further supported by the company's recent decision to cut its quarterly common dividend by approximately $1.25 billion," as well as "prudent liquidity" and "a broad franchise that generates strong pre-tax, pre-provision income," it said.

Shares fell 8% to $19.30 on Wednesday. The stock was down fractionally in recent after-hours trading.