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Morgan Posts 1st Loss in 5 Years

Financial services: Firm writes off loans to Enron and Argentina. Low interest rates help Bank One report profit.

January 17, 2002|MICHAEL NOL and SCOTT SILVESTRI | BLOOMBERG NEWS

NEW YORK — J.P. Morgan Chase & Co. posted its first quarterly loss in five years as it wrote off loans to Enron Corp. and Argentina. Bank One Corp. reported a profit, benefiting from the lowest interest rates in 40 years.

"The real soft spot in the banking industry" is bad loans, said Jim Russell, an analyst at Fifth Third Bank, which manages $31 billion and owns bank shares. "It's not just Enron--it's other credits as well."

New York-based J.P. Morgan Chase, led by Chief Executive William Harrison, lost $807 million on trading and lending to Enron, the bankrupt Houston-based energy trader, and Argentina, which devalued its currency and defaulted on its bonds. It has an additional $2.5 billion of potential losses on its books.

Bank One, run by former Citigroup Inc. President Jamie Dimon, rebounded from a year-ago loss as lending at the Chicago-based bank rose. It eliminated 2,300 jobs to cut costs. Rivals including Wells Fargo & Co. on Tuesday reported profit in the quarter because home mortgages surged.

J.P. Morgan Chase, the second-biggest U.S. bank, lost $332 million, or 18 cents a share, contrasted with a profit of 34 cents a share, or $708 million, in the same quarter in 2000. The stock fell $1.67 to $36.20 on the New York Stock Exchange.

"This was not a good quarter and not a good year," said Chief Financial Officer Dina Dublon.

J.P. Morgan Chase wrote off $456 million related to Enron and still has exposure of $2.06 billion. The bank traded commodities with the energy trader and lent money to it. Last year, it advised Enron, whose bankruptcy in December was the biggest in U.S. history, on a failed attempt to merge with rival Dynegy Inc.

J.P. Morgan Chase also wrote off $351 million for its exposure to Argentina, which devalued the peso to boost exports and pull the country out of recession.

The company, which set aside $510 million in the quarter to cover the possibility of increased loan losses, also arranges loans to retailer Kmart Corp., which is preparing to tap the remainder of $1.6 billion of credit lines to raise cash.

Standard & Poor's said it lowered its outlook on J.P. Morgan Chase's debt ratings to "negative," citing the write-offs. If the firm is downgraded, it will have to pay more in interest on its debt, $9.5 billion of which is due this year.

Bank One earned $541 million, or 42 cents a share, in the fourth quarter, after losing $512 million, or 44 cents, in the period in 2000.

Net income in retail banking, Bank One's biggest unit, with 1,800 offices in 14 states, was $293 million, compared with a loss of $25 million in the previous year. Net interest income, or what the bank makes from lending, rose to $2.27 billion from $2.24 billion in the year-earlier quarter.

First USA , Bank One's credit card unit, had net income of $326million, more than double what it earned in the same period a year ago. The bank said bad loans rose 43% to $3.55billion and were up 14% from the third quarter.

Dimon said last month that loan exposure to Enron was less than $100 million. The company said Wednesday only that bad loans included "a single energy-related credit and Argentina exposure."

Bank One shares fell 85 cents to $37.75.

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Earnings Preview

A sampling of companies expected to report quarterly earnings today, ranked by expected year-over-year growth in operating earnings-per-share (EPS), compiled by Thomson Financial/First Call.

Ticker Analysts' est. Year-ago Year-over-

Company symbol EPS qtr. year % chg.

Golden West Finan. GDW $1.33 $0.93 43.0%

Citigroup C 0.73 0.65 12.3

General Electric GE 0.39 0.36 8.3

Consolidated Edison ED 0.57 0.53 -7.6

Duke Energy DUK 0.45 0.47 -4.3

Bank of New York BK 0.46 0.50 -8.0

Microsoft MSFT 0.43 0.47 -8.5

IBM IBM 1.32 1.48 -10.8

PNC Bank PNC 0.99 1.13 -12.4

United Technologies UTX 0.67 0.84 -20.2

PPG Industries PPG 0.43 0.75 -42.7

Willamette WLL 0.39 0.78 -50.0

Delphi Automotive DPH 0.10 0.36 -72.2

Unisys UIS 0.11 0.41 -73.2

Weyerhaeuser WY 0.02 0.88 -97.7

Southwest Airlines LUV 0.00 0.19 NM

Sun Microsystems SUNW -0.04 0.16 NM

Nortel Networks NT -0.16 0.26 NM

Ford Motor F -0.50 0.64 NM

USAirways U -7.54 -1.33 NA

Notes: NM = not meaningful. A loss in any period makes percentage change not calculable. NA = not applicable.

Year-over-year growth and percentage changes are based on earnings-per-share figures and may differ from percentage changes based on total profit.

For more information on First Call, check www.firstcall.com.

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