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Financials weak, Morgan Chase weakest

By Greg Morcroft
CBS.MarketWatch.com
Thursday, November 7, 2002

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NEW YORK -- J.P. Morgan Chase shares came under selling
pressure Thursday, despite a denial by the nation's second-largest
bank that it had suffered large losses on gold derivatives.

"The rumors circulating today are false and irresponsible," a J.P.
Morgan Chase spokesman said.

J.P. Morgan Chase's shares recently traded at $20.86, down $1.20,
for a drop of 5.4 percent.

Art Hogan, chief market analyst at Jefferies & Co., said the
derivatives loss talk made the rounds before the opening of trading,
but he generally dismissed them, noting that the entire financial
sector was struggling Thursday and that the cloud of a civil
lawsuit was also hanging over the Dow Jones Industrials component.

On Wednesday, the Wall Street Journal reported that the Securities
and Exchange Commission had notified Goldman Sachs and J.P.
Morgan Chase that it recommended filing civil securities-fraud
charges against the two firms over the way they allocated IPO
shares.

Against this backdrop, the Philadelphia Bank Index shed 1.8
percent. The Amex Securities Broker Dealer Index also retreated
to the tune of 1.8 percent.

Morgan gold rumor rides again

Rumors of derivatives losses at J.P. Morgan Chase have sporadically
appeared in the market over the last 18 months, particularly with
respect to gold.

Gold Antitrust Action Committee Chairman Bill Murphy, attending
the New Orleans Investment Conference Wednesday, said he
lumps J.P. Morgan Chase in with several other large banks that
have potentially dangerous exposure to gold derivatives.

"It is only a matter of time before they explode and the gold price
shoots to the moon," said Murphy, whose GATA committee
believes commercial and central banks work together to depress
the price of the precious metal.

Murphy said central banks' gold loans and swaps amount to about
14,000 tons, mine supply is 2,500 tons, and a yearly supply/demand
deficit of the metal is running at about 14,000 tons.

"Pile a mountain of gold derivatives on top of that and you a gold
price explosion that is just waiting to happen," he asserted.

U.S. banks and their customers continued to pour money into
derivatives in the second quarter, as the total value of the
specialized contracts passed $50 trillion.

The second-quarter data are the most recent available from the
Comptroller of the Currency, which is responsible for monitoring
derivatives.

The banks with the largest derivative positions were J.P. Morgan
Chase, with $25.9 trillion, up from $23.5 trillion in the first
quarter; Bank of America, with $10.3 trillion, compared to $9.8
trillion last quarter; and Citibank, the Citigroup subsidiary with
$7.4 trillion, versus $6.7 trillion in the first quarter.

Equity, commodity, and other contracts jumped $85 billion, to
$1.1 trillion during the second quarter.

Bank of America's shares lost $1.69, or 2.4 percent, to $68.40,
while Citigroup dropped 79 cents to $37.07.