This time Morgan-Chase fingered "a difficult capital markets environment" as the main culprit. Earnings would be hurt, it said, partly because currency markets were less volatile. Chase's once super-charged private equity business, which produced $1.3 billion in earnings in its 1999 fourth quarter, was expected to produce a mark-to-market loss of more than $300 million in 2000's fourth quarter.

These businesses were to be the cornerstone of the merged Chase and Morgan: capital markets, private equity and investment banking. The joint bank did not say what its earnings would turn out to be, but said they would be lower than the third-quarter net income of the two merged banks. Of course, it didn't compare fourth-quarter 2000 earnings with those of 1999. That's when Chase felt it was master of the universe, largely thanks to its Chase Capital Partners unit.

That portfolio now, of course, is part of Chase's headache. Trying to put as bright a light on the dismal earnings as possible, Morgan-Chase noted that, "despite deterioration in the external credit environment, the credit portfolios of Chase and J.P. Morgan are performing relatively well."

That's a odd, considering that Chase is one of the world's biggest loan syndicators, and that banks reporting serious loan-loss problems attribute them to syndicated loans. Does that mean that Chase was selling all its junk to others, and keeping little, if any, itself?

As usual with large banks under earnings pressure, Morgan-Chase plans to boost earnings through large one-time gains. Chase plans an $870 million pre-tax gain from the sale of its Hong Kong-based retail banking business, and Morgan will record a $400 million gain from the termination of its operating agreement with Euroclear.

It has been one bit of bad news after another since the merger announcement. Investors initially showed no enthusiasm, and that hasn't changed. The merger got all the necessary regulatory approvals; shareholders are expected to approve the Dec. 22. Will they? Some observers think they will out of desperation, believing there is little hope for Chase or Morgan as stand-alone entities.

One strange aspect to the earnings warning: William H. Harrison, Chase's CEO, is slated to be CEO of the merged bank. But in their joint statement, Douglas A. Warner 3d was mentioned first. Generally, every word is minutely scrutinized in such documents, and thus each is filled with meaning. But deciphering the tea leaves is tough, if not impossible. Some thoughts: 1) Harrison lets Warner lead when there's bad news; 2) Harrison wants to show his respect for Warner, or 3) Warner will be the real boss.

The fun and games continue.

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