Clobbered by trading losses, J.P. Morgan & Co. said its net income for the third quarter plummeted by 61%, to $156 million.
Operating earnings per share, at 58 cents, were 23 cents below analysts' consensus estimate, according to First Call Corp.
J.P. Morgan had signaled that poor results were coming, triggering expectations of similar disappointments from other money-center banks with sizable international exposure. After Morgan's release Monday, Lawrence Cohn of Ryan Beck & Co. said, "There is very little in this earnings release that is very positive."
But another money-center bank had a much better showing.
Thanks to a large securities processing business that posted substantial gains in the quarter, Bank of New York Co. said it earned $301 million, 10% more than a year earlier. At 39 cents, earnings per share rose 15% and met analysts' estimates.
Other New York-based banking companies are scheduled to report earnings this week. Mr. Cohn said he expected Citigroup, Chase Manhattan Corp., and Bankers Trust Corp. to report results more like those at Morgan, whose share price rose $3.375 Monday, to $92.875.
"The unmistakable message is Bank of New York is not subject to the same types of volatility we see in the more trading- and lending-oriented global banks," said David Hilder, an analyst with Morgan Stanley Dean Witter.
J.P. Morgan's results included a gain of $34 million after taxes on the sale of an investment management business in Australia. Excluding that, net income was $122 million, or 58 cents a share.
"The quarter's results show the impact of market upheaval," said J.P. Morgan chairman Douglas A. Warner 3d. "We are aggressively adjusting to reduced capital markets activity globally and the possibility of a broader business slowdown."
Morgan said it continued to reduce its vulnerability to emerging markets, slashing its exposure in Asia by half and in Latin America by about 40%.
But that did little to impress analysts.
"The quarter was not good," said Diane Glossman of Lehman Brothers. "They were able to move through an extremely volatile market and still make money, but if the situation continues, it's going to make it very difficult to generate meaningful returns."
Ms. Glossman, along with other analysts, lowered yearend earnings estimates. She put Morgan down to $5.30, from $6.15, for 1998, and to $6, from $6.50, for next year.
"I was really struck by the pervasive weakness in revenues," Mr. Cohn said. "On one hand they say they're cutting expenses, but their challenge is revenue."
Morgan, the nation's fourth-largest banking company, with $298 billion of assets, said its total revenue for the quarter declined by 32%, to $1.3 billion. Of that amount, $1.1 billion was from "client-focused" activities, also off 32%.
Market making-the category that includes fixed-income, emerging markets, equities, and foreign exchange activities-produced only $260 million of revenue in the third quarter, down from $669 million a year earlier.
The fixed-income area alone declined $277 million, to $56 million. Improvements in equities and foreign exchange were too small to affect the overall result.
The company said it lost about $130 million on Russian trading account positions. Revenue was also hurt by a 50% decline in proprietary investing and trading, to $121 million.
Morgan added $75 million to the loan-loss provision, bringing the total allowance for credit losses to $914 million.
Operating expenses were down about 17% from a year earlier, to $1.1 billion. The company said it expects to exceed a previously announced cost- reduction target that would eliminate $300 million to $500 million in expenses. The plan would reduce core expenses by $400 million on an annual basis by 1999, the company said.
In a note to investors, SBC Warburg Dillon Read analyst Thomas Hanley said Morgan's weak revenue overshadowed its expense management. "We expect J.P. Morgan has only just begun its expense reduction initiatives," Mr. Hanley wrote.
Ms. Glossman said the efforts will remain clouded until the foreign- markets exposure is under control or losses are curbed. He said the expense program "all sounds good, but the unknown is how soon the markets will normalize."
Bank of New York
Analysts were encouraged by Bank of New York's results, seeing a mix of fee businesses that insulates the $63.5 billion-asset company from market volatility.
"I would not expect to see a big decline in revenue or income even in a slower economy or slightly weaker financial markets," said Mr. Hilder of Morgan Stanley Dean Witter.
Bank of New York attributed its results to securities trading and servicing, and trust and investment fees. Noninterest income of $572 million was up 14% from a year earlier, while securities processing fees rose 28%, to $258 million.
Noninterest expense was also up, by 2% to $481 million. Included in the expenses was $8 million related to making computer systems compliant with year-2000 requirements.
Net interest income was $430 million, down 13% from the 1997 quarter, because of a narrowing of the net interest margin.