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JP Morgan Chase unveils $1.3bn charge to cover investor lawsuits
Independent, The (London), Jan 23, 2003 by Katherine Griffiths Banking Correspondent
JP MORGAN Chase, the US's second-biggest bank, yesterday added to fresh gloom descending on investment banks by unveiling a $1.3bn (pounds 812m) charge it has taken to cover legal battles with investors and remaining merger costs.
The provision contributed to a fourth-quarter loss of $387m, from a $332m deficit in the same period last year.
The announcement came after Citigroup and CSFB said on Tuesday they were increasing their reserves by almost $2bn collectively in order to cope with impending litigation over share allocations, the quality of their analysts' research and their involvement with Enron.
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JP Morgan is bracing itself for similar cases, having taken part in December's global settlement with Eliot Spitzer, the New York State Attorney General, over the same issues. JP Morgan handed over $50m as part of the settlement, the smallest fine handed out to one of the major banks.
JP Morgan has been hit by the slump in business for investment banks and has also been dogged by concerns about bad loans it has suffered as a result of its rapid expansion in the past couple of years.
William Harrison, the chairman and chief executive of JP Morgan, said: "2002 tested the strength and tenacity of JP Morgan Chase. While operating revenues were up 2 per cent from 2001, the impact of sluggish capital markets and our concentrations in private equity and in segments of our commercial credit portfolio led to a disappointing year."
The bank tried to point to some positive signs, including a 23 per cent recovery in its trading revenue compared with last year. Its credit costs stabilised from this time last year.
The bank, which was hit last year by loans to Argentina which have soured, said it achieved a profit in its investment bank in the fourth quarter of $361m.
Separately Merrill Lynch warned it might suffer a drop in revenue this year if weak stock markets continue to dampen appetite among investors and companies for investment banking services.
Merrill, America's largest brokerage, said fourth-quarter earnings before special items jumped 25 per cent. The bank has been one of the few investment banks to cut its costs faster than its revenues have dropped. It has reduced its global headcount by 21,000 in the past two years.
Copyright 2003 Independent Newspapers UK Limited
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