J.P. Morgan Hurt by Bad Loans, Argentina
{{#rendered}} {{/rendered}}J.P. Morgan Chase & Co. Inc. on Wednesday posted a fourth-quarter loss, hit by Enron Corp.'s bankruptcy and Argentina's economic woes as well as by bad loans and merger costs.
Separately, the No. 2 U.S. bank holding holding company said it will buy an $8.2 billion credit-card portfolio from struggling rival card issuer Providian Financial Corp. Troubled energy trader Enron's collapse left J.P. Morgan, one of its top lenders, with hefty loan losses, while a currency devaluation and economic turmoil in Argentina dented trading and other revenues revenues. ,>
J.P. Morgan also put away another $510 million in the quarter to protect against loan defaults, as the U.S. economic slump makes it increasingly difficult for people and companies to repay debts. The stock market slump further dented profits the company earns from investing, trading and advising companies on mergers.
{{#rendered}} {{/rendered}}The bank also could see further increases in nonperforming assets, or loans with potential repayment problems, Chief Financial Officer Dina Dublon said in a conference call. The Federal Reserve cut interest rates 11 times last year to thwart a recession, but the moves did not take pressure off big, Wall Street banks like J.P. Morgan.
``2001 was a tough year and not an ideal scenario for the first year of our new firm,'' Dublon told analysts. ``Short-term challenges are not over by any means. Our economic scenario for 2002 is not a rosy one.''
OPERATING EARNINGS MISS VIEWS
{{#rendered}} {{/rendered}}J.P. Morgan posted a quarterly loss of $332 million, or 18 cents a share, including unusual charges. It reported a profit of $708 million, or 34 cents a share, in fourth quarter 2000.
Excluding restructuring and merger costs, the company turned a profit of $247 million, or 12 cents a share, down from $763 million, or 37 cents a share, a year earlier.
Wall Street had expected earnings of 20 cents to 50 cents a share, with a mean estimate of 35 cents, according to research firm Thomson Financial/First Call.
{{#rendered}} {{/rendered}}J.P. Morgan shares were down 97 cents, or 2.6 percent, at $36.90 in midday New York Stock Exchange trade.
The bank, which cut about 8,200 jobs last year to cope with merger overlap and tough times, may have to eliminate more positions in its technology operations and financial management unit, Dublon told reporters. She declined to Dublon declined to quantify any headcount reduction but said the bulk of the cuts already happened.
For all of 2001 -- the company's first full year of results since it was formed by the merger of J.P. Morgan and Chase Manhattan -- earnings fell 71 percent, to $1.69 billion, or 80 cents a share, from $5.73 billion, or $2.86 a share, in 2000.
{{#rendered}} {{/rendered}}Enron's bankruptcy and Argentina's economic crisis increased the bank's credit costs and cut its trading and other revenues by $807 million in the fourth quarter.
One of J.P. Morgan's smaller competitors, FleetBoston Financial Corp., has postponed its results to assess damage from Argentina.
``I think they set aside for a lot of (Enron exposure),'' said U.S. Bancorp Piper Jaffray analyst Andy Collins. ``They put it on nonperforming, and I think they're doing the right thing there.''
{{#rendered}} {{/rendered}}J.P. Morgan has about $2.06 billion in total remaining Enron exposure, Dublon told reporters.
SMARTING FROM WEAK MARKETS
The bank said it raised its loan loss provisions by $510 million in the quarter because the slack economy could lead to defaults. Its fourth-quarter net results also include $841 million pretax in merger and restructuring costs.
{{#rendered}} {{/rendered}}Revenues at J.P. Morgan's investment bank, which advises on stock offerings and merger deals, fell 16 percent in the quarter, to $3.11 billion, while trading revenues dropped 28 percent to $969 million. Weak markets made companies curtail plans to sell shares to the public and depressed the value of banks' own investment portfolios.
Losses at JPMorgan Partners, the bank's investment arm, widened to $385 million from $93 million.
Retail and middle-market financial services revenues rose 11 percent to $2.87 billion as last year's interest-rate cuts fueled loan growth.
{{#rendered}} {{/rendered}}J.P. Morgan's commercial charge-offs -- loans for which the bank does not expect repayment -- jumped to $433 million from $159 million in fourth quarter 2000, with consumer charge-offs rising to $649 million from $588 million.
J.P. Morgan shares fell about 20 percent last year, underperforming the S&P bank index, which declined about 2.5 percent.