A significant portion of J.P. Morgan & Co.'s earnings will "vaporize" over the next couple years as overseas turmoil buffets key operating areas, a widely followed analyst said Monday.

Judah S. Kraushaar of Merrill Lynch & Co. cut profit projections for the New York banking company to $4.75 per share, from $6.75, for this year and to $7.15, from $9.05, for 1999, citing a "harsh operating environment" for the once seemingly invincible institution.

Mr. Kraushaar stopped short of urging investors to unload the stock, maintaining a lukewarm "accumulate" rating.

"Shares seem moderately undervalued" and could become more appealing if the company undertakes a share repurchase in 1999, he said.

But the reduction stands out among earnings revisions by analysts, who typically lower or raise projections by a few pennies at a time. Morgan's stock dipped $2.9375, to $86.0625.

The statements, in an early morning report to clients, prevented Morgan shares from opening for more than 20 minutes, as traders were unable to fill sell orders.

"It's crunch time" for Morgan's trading, investment banking, and equities operations, Mr. Kraushaar said.

"The only possible encouraging signs may be good merger and acquisition fees in the third quarter, reflecting a couple of big deals, and perhaps somewhat better emerging markets results compared to peers once Russia is set aside," Mr. Kraushaar said.

The comments were aimed at Morgan, but they reflect growing unease about the dramatic falloff in trading and other revenues that have been propelling profits for several big banks.

The momentum "couldn't be sustained, and now we're going to see the results," said Charles M. Vincent, banking analyst for PNC Institutional Investor Services.

Signs are already appearing. BankAmerica Corp. and BankBoston Corp. recently acknowledged sizable hits for the third quarter, and were forced last week to revise their own figures as conditions worsened.

Morgan has said only that third quarter trading revenues were roughly $300 million, as of the end of August. The figure is about $200 million off pace from last year's third quarter.

A Morgan spokesman on Monday declined to elaborate on the company's previous comments or to discuss the Merrill Lynch report.

But some observers say Morgan's woes may go deeper and be more sustained, because it operates more like an investment bank than any of its peers.

The bank is vulnerable to global "illiquidity" that is drying trading operations and sharply reducing investment banking flow, Mr. Kraushaar said.

The developments will probably jeopardize Morgan's earlier stated program to boost returns on earnings, Mr. Kraushaar said, at least through the end of next year.

Mr. Kraushaar's estimate cuts put him well below the Wall Street consensus of $6.49 this year and $7.97 next year for J.P. Morgan, according to First Call Corp.

But the consensus may follow the Merrill analyst's lead, according to comments by analysts on Monday.

"We're reviewing the entire company," Mr. Vincent said. "This is no longer the blue-chip organization we have known and cherished."

Carla D'Arista of Friedman, Billings, Ramsey & Co. also said she is looking at Morgan with an eye toward reducing earnings estimates.

The action came as broad markets see-sawed on overseas volatility and the release of President Clinton's grand jury testimony in the Monica Lewinsky case. After starting the day down more than 150 points, the Dow Jones industrial average ended at 7933.25, up 37.59 points, or 0.48%.

The Standard & Poor's bank index dropped 1.20%, and the Nasdaq bank index shed 0.02%, while the S&P 500 rose 0.37%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.