J.P. Morgan Chase & Co. is warning that its investment banking revenues continue to be dampened by lower levels of merger-and-acquisitions advisory activity, underwriting, and trading.

In a filing with the Securities and Exchange Commission early Wednesday, Morgan Chase said that “the current weak market environment continues to affect adversely revenue opportunities” for its investment bank. Fees from the business for the rest of the year will be linked to activity in M&A and underwriting, and trading revenues for the remaining quarters of 2001 will probably fall below the $2 billion recorded in the first quarter because of seasonal patterns and market conditions.

Moreover, Morgan Chase’s private equity business, which helped propel the company to record earnings in past quarters, is shaping up to be a disappointment. The company said second-quarter gains in the publicly held portions of its private equity portfolio were more than offset by losses from investments in private companies, especially in the telecommunications sector.

Investment banking was to be the hallmark of the new company created by last year’s merger of Chase Manhattan Corp. and J.P. Morgan & Co., but difficult market conditions — particularly a dearth of dealmaking and new securities issuance — have thwarted those ambitions for now.

The filing was based on comments made in a presentation late Tuesday afternoon by Marc J. Shapiro, vice chairman of finance and risk management, and Donald H. Layton, co-head of investment banking. Morgan Chase’s stock tumbled 4% in trading Wednesday morning, and recovered only slightly, closing down 3.4%.

J.P. Morgan Chase will not report second-quarter profits until mid-July, but some analysts are already interpreting the sober outlook as bad news for capital markets banks in general. Most were forecasting a bleak first half of the year followed by a rebound in the second. But Morgan Chase’s statements were the first sign that things might not pick up after all.

“What they’re seeing is very little demand for their products,” said Andrew Collins, an analyst at ABN Amro. “Capital markets have not recovered.”

Shares of Citigroup fell 1.3%, and shares of Bank of America 0.4%. Both companies also have sizeable capital markets groups. The American Banker index of 225 bank stocks fell 1.4%.

One by one on Wednesday, analysts slashed their second quarter and yearend profit estimates for Morgan Chase. Diane Glossman, an analyst at UBS Warburg, cut her estimate to 72 cents from 81 cents per share for the quarter, and to $3.15 from $3.45 for the year. Judah Kraushaar from Merrill Lynch & Co. cut his estimate to 66 cents from 74 cents for the quarter and to $3.30 from $3.40 for the year. Mr. Collins cut his second-quarter estimate to 54 cents from 75 cents and his yearend estimate to $2.95 from $3.45 a share.

The consensus as tracked by First Call/Thomson Financial was 78 cents for the quarter and $3.31 for the year.

The ability of Morgan Chase’s private equity group to make cash gains from the sale of investments has gotten more difficult this quarter. The company said current weakness in the market for initial public offerings and a sluggish mergers and acquisitions market have limited its ability “to implement various ‘exit’ strategies” for its investments.

For the most part, analysts cut their estimates in line with the outlook for Morgan Chase’s private equity business. Those who cut estimates said they are still positive about the long-term outlook for the company, and noted that Morgan Chase is still rising in underwriting and advisory categories.

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