J.P. Morgan & Co. said Wednesday that fourth-quarter profits would be sharply lower than expected because of "weak results" in proprietary activities and a $100 million pretax restructuring charge.
The $298 billion-asset banking company said that despite strong performances in investment banking and other client-related businesses, results would be lower than the 58 cent-per-share profit recorded for the tumultuous third quarter. That was already down 60% from the same period last year.
Analysts had been expecting profits of $1.03 per share this quarter, according to First Call Corp.
But lower trading revenues, losses from a hedging position, and virtually no gains from equity investments would combine to lower the quarter's results, analysts said.
"It's been a rugged environment," said David Berry, director of research at Keefe, Bruyette & Woods. "We had presumed that the fourth quarter would be difficult but better than the third quarter."
Morgan said the restructuring charge is related to its decision in November to eliminate 4.5% of its work force.
In a statement, the bank said it had "confidence" in the outlook for its global business. "We're positioned well for the new year as markets rebound," said Joseph Evangelisti, a spokesman. "Our client businesses are growing, and our market share is up substantially."
Still, coming on the heels of Deutsche Bank's deal for Bankers Trust Corp., the announcement renewed speculation that Morgan would not be able to remain independent.
"It's clear that there's a floor in the market with regard to performance," said Carla D'Arista, an analyst at Friedman Billings Ramsey.
Deutsche Bank's German rival, Dredsner Bank, is known to be aggressively seeking a merger partner in the United States to build its investment banking capabilities. Chase Manhattan Corp. is also frequently mentioned as a Morgan suitor.
Analysts said, however, that Morgan's size and pedigree would command a price few competitors could afford. Chairman Douglas A. Warner, who is known as Sandy, also does not appear willing to sell.
"It's not out of the question," Ms. D'Arista said. "But Sandy has a lot more control over his destiny than smaller companies," such as Bankers Trust.
Morgan's announcement also reaffirmed analysts' expectations that the fourth quarter would be a difficult one for the money-center group of banks. A sluggish market for securities underwriting and ongoing trading volatility is expected to drag down revenues, analysts said.
For example, Citigroup's Salomon Smith Barney unit, which had a $325 million loss in the third quarter, is expected to break-even in the fourth, said Steven Eisman, an analyst at CIBC Oppenheimer. BankAmerica Corp., where profits declined 50% last quarter, has told analysts in recent weeks it could have additional losses from its relationship with D.E. Shaw, a New York hedge fund and derivatives company.
"There is residual weakness in capital markets," Ms. D'Arista said.
Morgan said its client businesses were performing well, particularly its advisory services. In one high-profile example, the bank assisted Exxon Corp. in its proposed merger with Mobile Corp.
"The client side is solid," said Bradley Ball, an analyst at Credit Suisse First Boston. "That said, investments to build the franchise over the years have yet to payoff for shareholders."