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J.P. Morgan Expects Higher Loan Defaults, Lower Revenue

Earnings: The bank says its third-quarter profit will fall 'well below' the second quarter's. Shares slump on the news.

September 18, 2002|MICHAEL NOLL | BLOOMBERG NEWS

NEW YORK — J.P. Morgan Chase & Co., the second-biggest U.S. bank, Tuesday cut its forecast for third-quarter profit because of a surge in loan defaults by telecommunications and cable companies and a plunge in trading revenue.

Chief Executive William B. Harrison Jr. said in a conference call with investors that he may fire employees to slash costs after the bank said third-quarter profit from operations would fall "well below" the 58 cents a share earned in the second quarter.

Standard & Poor's Corp. cut the bank's credit rating one level to A-plus.

After the announcement, Morgan shares, down 41% year to date, slumped to $19.51 in after-hours trading. The stock had slipped 16 cents to $21.55 on the New York Stock Exchange in regular trading.

The announcement could rattle financial stocks today.

"We didn't fully appreciate the level of deterioration that would occur beginning in the last couple of months," Harrison said. "It developed into worse than we thought."

In the last year, the world's biggest arranger of syndicated loans and a top underwriter of corporate bonds has been hit by Enron Corp.'s collapse, loan losses from the failure of companies such as Global Crossing Ltd. and Argentina's debt default.

Another setback came last week when a federal judge rejected Morgan's claims of fraud against 11 insurers as part of an effort to collect $965 million for losses on gas and oil trades with Enron.

Loan losses overall are expected to total about $1.4 billion in the three months ending Sept. 30, an increase from $302 million in the previous quarter, the bank said.

Morgan's trading revenue in July and August was about $100 million, compared with $1.1 billion for the second quarter.

The company cited "less favorable results from trading positions in a challenging market environment" for the decline. U.S. stock prices plunged to five-year lows in July.

Analysts surveyed by Thomson First Call had, on average, forecast that Morgan would earn 54 cents a share in the current quarter, up from 51 cents a year earlier.

Harrison said the bank doesn't plan a "massive" cut in jobs. "It's going to be thoughtful," he said.

Despite the expected earnings shortfall, Morgan on Tuesday declared its regular quarterly dividend of 34 cents a share. Some analysts had thought the dividend might be suspended.

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