J.P. Morgan Chase reserves erase profits

/ Source: The Associated Press

J.P. Morgan Chase & Co. on Wednesday reported a loss of $548 million for the second quarter after pumping up its reserves by $2.3 billion to cover the expected cost of litigation stemming from the Enron Corp. and WorldCom Inc. bankruptcies.

The New York-based bank, the nation's second largest, said that the results for the April-June period, which translate to a loss of 27 cents a share, compared with earnings of $1.83 billion, or 89 cents a share, a year earlier.

Excluding the litigation reserve and a $60 million charge related to its merger with Bank One, earnings for the second quarter would have been $1.81 billion, or 85 cents per share. That's better than the 83 cents expected by analysts surveyed by Thomson First Call.

William B. Harrison Jr., chairman and chief executive, said in a statement accompanying the report that J.P. Morgan Chase "will continue to defend itself vigorously" in the legal cases. But, he added: "We have decided, after an extensive review, that our litigation reserves should be increased."

Harrison also said the second-quarter results reflected "strength in investment banking fees, continued improvement in our commercial credit portfolio and strong results from private equity." These were partly offset by declines in the bank's mortgage business and "weakness in trading as the capital markets environment became more challenging."

Last week, the nation's largest financial institution, Citigroup Inc., reported a sharp drop in profits as a mammoth class-action settlement with WorldCom investors cut into its earnings. Citigroup, also based in New York, took an after-tax charge of $4.95 billion, or 95 cents a share, to pay for the previously announced settlement and bolster the company's reserves to cover further litigation.

J.P. Morgan Chase said revenue for the second quarter totaled $8.6 billion, a decline of 5 percent from the year-earlier total of $9.03 billion.

Earnings for the first half totaled $1.38 billion, or 65 cents a share, down from $3.23 billion, or $1.57 a share in 2003.

The J.P. Morgan Chase-Bank One merger was not completed until July 1, so the banks reported results separately.

Bank One said its net income was $1.12 billion, or 99 cents a share, for the April-June period, up from $856 million, or 75 cents a share, a year earlier. For the first half, earnings were $2.35 billion, or $2.08 a share, up from $1.67 billion, or $1.45 a share in 2003.

Revenue for the second quarter was $4.4 billion, up 8 percent from $4.08 billion a year earlier.