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The stock market slump is casting a nasty pall on bank and brokerage profits this quarter, so some companies are making every effort to cast their weak numbers in the best light.

J.P. Morgan Chase


, for instance, which watched first-quarter operating profits sink 28% from a year ago, is relying on an even

weaker link in the earnings chain to put a shine on the results.

Most companies present quarterly earnings in comparison to the year-ago period, the idea being that profit growth is often cyclical over the course of the year, so performance can be assessed best based on looking at results in comparable periods. But for a number of financial companies reporting dismal first-quarter results, the numbers simply look too painful sitting next to last year's turbo-charged increases. So J.P. Morgan Chase and a handful of others are relying on some weaker comparison numbers to buff things up a bit.

J.P. Morgan Chase's fourth-quarter earnings report was its first following the merger of the former

Chase Manhattan

with the storied

J.P. Morgan

. It was also among the poorest in the history of its constituent companies. Losses in the firm's venture capital portfolio caused earnings to tumble more than 65% from a year ago, to 37 cents a share. But the fallout came in handy this quarter, as J.P. Morgan used the bleak fourth-quarter results as a springboard to accentuate the supposed improvements in the first-quarter bottom line.

For instance, compared with a year ago, trading revenue dropped 3% in the first quarter. But compared with the weak fourth quarter, trading revenue popped an eye-opening 64%. And in the private equity business, where a $92 million loss accounted for a good portion of the fourth-quarter drop, J.P. Morgan played up the $132 million first-quarter profit. That's still far short of the year-ago $654 million profit in that business. "The private equity business is still in a slump," wrote

Gimme Credit

analyst Kathy Shanley in her daily newsletter.

Of course, in some respects, the sequential quarter comparisons make sense, given the drastic change in the economic environment. Most observers now agree that the stock market's unprecedented rise and the record corporate profits of late 1999 and early 2000 were unsustainable.

"You have to look at a little bit of both" the seasonal and the sequential comparisons, says Mark Constant, brokerage analyst at

Lehman Brothers

. "There is some element of seasonality here, but the recent operating environment is the more relevant issue. The change in the underlying environment is much more dramatic than any seasonal comparisons. It's like night and day."

"This is not a pretty picture. And it's heightened in comparison to the record first-quarter of 2000," said a J.P. Morgan spokesman yesterday, discussing equity market conditions, on a conference call with analysts and investors. Of the emphasis on fourth-quarter comparisons in the latest press release, J.P. Morgan spokesman Jon Diat says the numbers are "helpful and more convenient for investors." Diat says the format was started in the fourth quarter and adds that 12-month and linked last-quarter numbers are "something that you'll continue to see. Our aim is to help investors."

Still, firms had no problem making seasonal comparisons in the oft-mentioned record quarters when profits were rocketing higher. For every operating number J.P. Morgan listed in its recent earnings release, the bank inserted fourth-quarter comparisons before year-over year changes. Earnings-per-share of 70 cents are compared with 37 cents in the fourth quarter and $1.01 in the first quarter of 2000.

"It's sort of abnormal,"says

Putnam Lovell

banks analyst James Mitchell. "But it's obviously not a perfect match,

though there are some business lines where it's appropriate depending on what you're looking at." (Mitchell rates J.P. Morgan a buy and his firm has no underwriting relationship with the bank.)

For instance, credit quality can be tough to gauge through year-over-year comparisons, because deterioration or improvement is more closely connected to economic conditions as opposed to earnings cyclicality. But in that respect, J.P. Morgan Chase didn't do so hot on that front, either, saying nonperforming assets, those that are past due but have not been charged off yet, jumped 16%, a noticeable spike for a bank that has managed to

balance a leading role in syndicated lending with a mostly pristine balance sheet to date.

Shanley points out that J.P. Morgan Chase tried to put an "upbeat spin" on its results by noting that most of the commercial credit problems were a result of "fallen angels," a reference to former investment grade companies, as opposed to a change in its risk outlook. "But whatever the source, it may be premature to conclude the credit cycle has already hit bottom," Shanley says.

As Constant of Lehman Brothers points out: "Maybe what's even more important to keep in mind is that what investors care about is the future." That being the case, the improvement implied by the latest numbers is not necessarily sustainanable or guaranteed to continue.


analyst Mike Mayo called the firm the "house of trading" in his latest research note, referring to the strength of its trading revenues which, at $2 billion, made up about a quarter of revenue and about one-half of income, he says. "In short, the firm was bailed out this quarter by trading, but the sustainability of this revenue stream is uncertain at best," said Mayo. He currently has a hold rating on the stock.

For instance, despite the reported first-quarter gain in J.P. Morgan Partners, the firm's private equity arm, the results also include $412 million in realized gains, offset by about $280 million in unrealized losses, with about $200 million of that taken as a writedown against the portfolio. "We think $200 million may only be the start of the writeoffs which will be required to bring this portfolio in line with current reality," says Shanley, citing the erosion in valuations from fallout in many high-tech companies. In other words, a quarter like the dreaded December one could happen again.