Chase Manhattan Corp., J.P. Morgan & Co., and PaineWebber Inc. are likely to post disappointing second-quarter earnings because of a slowdown in capital markets activity, Merrill Lynch & Co. says.

Judah Kraushaar, an analyst at Merrill Lynch, estimates in a report by the company that earnings per share will be 78 cents for Chase, $2.27 for J.P. Morgan, and 86 cents for PaineWebber - 7 to 8 cents below the Wall Street consensus for each. The firms will report results between July 13 and July 19.

Donaldson, Lufkin & Jenrette Inc. also is likely to disappoint, Mr. Kraushaar said. He expects the brokerage company to deliver 97 cents a share. The consensus is $1.01.

The three companies' shares have already suffered. Chase is off 28% from its 52-week high of $65.6679, J.P. Morgan 23% from its high of $146, and PaineWebber 11% from its high of $52.5625.

Though the Federal Open Markets Committee kept interest rates at 6.5% last week, its six previous hikes, which add up to a 1.75 percentage point jump in the Fed funds rate, have hurt origination activity, fixed-income trading, and private equity profits.

Though a number of capital markets-oriented banks and brokers should report earnings per share growth year to year, their earnings will drop 20% to 25% from the first quarter, Mr. Kraushaar said.

"We foresee lingering earnings disappointments for most of the multinational banks and brokers, even relative to recently lowered earnings per share expectations," he said. "Even with signs that [capital market] activity levels may have bottomed in May, we question whether the more recent snapback has been all that material."

Merrill Lynch's estimates are below consensus for 70% of the multinational banks and brokers that it covers.

Mr. Kraushaar recommends Chase for investors who are looking for value, but said, "It may take a couple of quarters to get past momentum and operating leverage issues."

Financial companies from which Merrill expects positive surprises include Affiliated Managers Group, a Boston asset manager, and Waddell & Reed Financial Inc. of Overland Park, Kan., which underwrites and distributes a portfolio of mutual funds.

Mr. Kraushaar's second-quarter estimates are 61 cents for Affiliated, versus a consensus of 60 cents, and 40 cents for Waddell & Reed, versus a consensus of 39 cents.

Fiduciary banks and asset managers are expected to post better gains in earnings per share, he said. The average fiduciary bank should post a 15% per share advance from last year, while the average asset manager's may rise more than 35%.

Mr. Kraushaar also recommends Bank of New York Corp., Citigroup Inc., and Mellon Financial Corp.

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