Magazine article American Banker

Mighty Morgan's Stock Slips after Disappointing Quarter

Magazine article American Banker

Mighty Morgan's Stock Slips after Disappointing Quarter

Article excerpt

Shares of J.P. Morgan & Co. are mired near their low point for the year after a disappointing earnings report last week.

Worries on Wall Street center on the New York bank's trading revenues, the lowest in seven quarters, and its rising expenses, partly made up of bonuses to inoculate its key staff from raids by competitors.

Morgan's stock on Thursday was unchanged at $61.625 in lackluster trading. The shares are 14.4% below their high this year and are not far above the $60 low they hit in early March.

'Highly Disappointing'

Banking analyst Diane B. Glossman of Salomon Brothers Inc. described the results as "highly disappointing" and said the company had been compelled to "pull some rabbits out of the hat to keep results close to investors' expectations."

The bank's earnings were aided by a $250 million gain from sale of shares of Columbia/HCA, the health-care concern. $50 million related to a tax refund, and $35 million from past-due interest bonds on Brazil's foreign debt.

Indeed, Lawrence W. Cohn of PaineWebber Group Inc. said Morgan "would arguably have lost money" if its second quarter results were judged by the accounting rules applicable to investment banking firms.

After recognizing a $113 million loss in securities held for sale, which investment banking firms regard as inventory and mark to market each quarter, Morgan would have reported earnings of $42 million, according to Mr. Cohn's analysis.

Without the past quarter's extraordinary items, the company would have made no money, he said.

A Morgan spokeswoman said Thursday the bank would not comment on its quarterly results beyond the statement it released with its earnings.

Unrealized Gains Cited

"Morgan still has a ton of unrealized gains in its investment account," Mr. Cohn said, but it may need those gains as well as a return of trading income to a more normal level in order to meet Wall Street's expectations for earnings this year and next. …

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