J.P. Morgan stock rises 16% from Tuesday fall over Enron

Citigroup also rebounds after finding they hid debt

July 25, 2002|By BLOOMBERG NEWS

NEW YORK -J.P. Morgan Chase & Co. Chief Executive Officer William B. Harrison Jr. said yesterday that a 41 percent plunge in the company's shares this month is unwarranted and that the finances of the second-largest U.S. bank by assets are sound.

"We are very comfortable with the basic fundamentals of the company starting with our capital condition and our liquidity condition," Harrison said during a conference call with analysts and investors.

J.P. Morgan shares rose $3.22, or 16 percent, to close yesterday at $23.30, their first gain in nine days and the biggest one-day increase in at least two decades. Harrison said he and Vice Chairman Marc J. Shapiro were buying the bank's shares because the price is "very, very depressed."

Harrison's comments reassured investors who had worried about the bank's cash position and its relationship with Enron Corp.

The stock dropped to its lowest level since 1996 Tuesday as Senate investigators alleged that J.P. Morgan and Citigroup Inc. helped the energy trader disguise loans to keep debt off its books, skirting securities laws and accounting rules.

The banks' executives told a Senate subcommittee that they had done nothing wrong.

Citigroup shares also rose, gaining $2.59, or nearly 10 percent, to close at $29.59 after dropping 16 percent Tuesday.

J.P. Morgan, the largest bank after Citigroup in terms of assets, stands to lose up to $2.06 billion because of lending and trading relationships with Enron and faces legal claims from investors suing the energy trader's financial advisers.

"We acted properly and with integrity in all the Enron matters," Harrison said. "We have not to our knowledge assisted Enron or any other company in misrepresenting facts about the financial conditions."

J.P. Morgan, the biggest trader of derivatives, also dismissed speculation that it might have to put up more money if its stock falls below a certain level. Derivatives are contracts whose value is derived from underlying securities or commodities.

Stephen Berman, who helps manage $9 billion for Stein Roe Investment Counsel, said the bank's conference call helped satisfy him that J.P. Morgan's business plan is on track.

"They did a good job reviewing the situation and presenting their viewpoint," he said. "Is the business being affected? Are the prospects of the company being affected? I think the answer is no.

Some analysts suggest that J.P. Morgan needs to do more to increase its capital, which by some measures is less than that of rivals such as Bank One Corp., Wells Fargo & Co. and Bank of America Corp.

"The company's in denial about how bad the problems are," said David A. Hendler, a fixed-income analyst with the independent research company CreditSights Inc. "We need a change in management in top levels, a management that's more realistic about the problems and how to address them."

J.P. Morgan's $42 billion in shareholder equity - assets minus liabilities - is higher than that of any other U.S. bank except Bank of America Corp. and Citigroup, but the ratio of its capital to average assets stands at 5.4 percent, less than that of Bank One, Wells Fargo and Bank of America, Hendler said.

The bank said last week that its second-quarter profit more than doubled to $1.03 billion.

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