Prosecution report says Citigroup, other banks assisted Parmalat fraud


By Justin Baer
Bloomberg News Service
Wednesday, July 21, 2004

J.P. Morgan Chase & Co., the second- biggest U.S.
bank, had a quarterly loss after setting aside $2.3
billion to help settle lawsuits stemming from its role
in the collapse of companies such as Enron Corp.

The second-quarter net loss of $548 million, or 27
cents a share, compares with net income of $1.83
billion, or 89 cents, a year earlier, the
New York-based bank said in a statement. Profit
before the costs exceeded analysts' estimates.
The results exclude Bank One Corp., which J.P.
Morgan bought for $57 billion on July 1.

Chief Executive Officer William Harrison, 60, joins
his counterpart at Citigroup Inc. in bracing for
multibillion-dollar legal costs. Investors accused
J.P. Morgan and Citigroup of helping bankrupt
companies such as Enron and WorldCom Inc.
conceal financial risks in exchange for
investment-banking fees.

"If you take the reserves now, you get them out
of the way," said Robert Maneri, who helps manage
$47.5 billion, including J.P. Morgan, at
Cleveland-based Victory Capital Management.
"Their hand may have been pushed a little by
Citigroup doing it."

Citigroup added $4.95 billion to its legal reserves in
the second quarter, contributing to a 73 percent
decline in quarterly profit. J.P. Morgan, with assets
of about $1.1 trillion, ranks second in size to New
York-based Citigroup.

J.P. Morgan and Bank One told investors that their
combination would save $3 billion annually, more
than an earlier forecast of $2.2 billion as planned
job cuts rise to 12,000 from an estimated 10,000.
Former Bank One CEO James Dimon, who is
slated to succeed Harrison in two years, is leading
the merger project.

The companies also announced a plan to repurchase
as much as $6 billion in common stock.

Shares of J.P. Morgan rose 42 cents to $36.82 at of
4:01 p.m. in New York Stock Exchange composite
trading. They had gained about 3 percent in the past
year, less than the 5.9 percent 24-member
Philadelphia/KBW Bank Index's advance. J.P.
Morgan peaked at $67.17 in March 2000.

"Their expectations have increased, in terms of how
much they can save from the merger," said Mark Batty,
who helps manage $48 billion, including 2.2 million J.P.
Morgan shares, at PNC Financial Services Group.
"Obviously, that's a positive. Overall, things seem to
be progressing.'"

J.P. Morgan said without litigation and merger costs
profit would have been $1.81 billion, or 85 cents a
share. The company was expected to earn 83 cents,
according to the average estimate of 16 analysts
surveyed by Thomson Financial.

"We have decided, after an extensive review, that our
litigation reserves should be increased," Harrison said
in a statement. "Our earnings this quarter, excluding
the charges, were comparable to the prior year."

Chicago-based Bank One, in its last quarter as a
separate company, said net income rose to $1.1
billion, or 99 cents a share, from $856 million, or
75 cents, a year earlier. On average, analysts had

To date, the bank has earmarked about $4.7 billion
pretax for litigation. In a meeting with analysts at the
bank's New York headquarters, Harrison said the
Enron case comprised a "significant amount" of last
quarter's reserves. The quarter's net loss is about 27
times more than Harrison's 2003 pay of $20 million.

Investors sued Enron's investment banks, including
J.P. Morgan, for allegedly helping the energy trader
disguise loans as assets.

J.P. Morgan also said it will have second-half pretax
charges of $1.3 billion to $1.5 billion to implement
more conservative accounting policies.

Profit in J.P. Morgan's investment-banking unit fell
32 percent to $703 million, while revenue declined
26 percent to $3.1 billion because of a slump in
trading revenue. Wall Street firms such as Merrill
Lynch & Co. also reported lower second- quarter
trading revenue.

"There is room for having a stronger outlook for
revenues in investment banking," J.P. Morgan Chief
Financial Officer Dina Dublon said on a conference
call with reporters. "We are going into the summer
months, and it tends to be slower than what you
would have in the spring. Fees were very high for
us, and the pipeline is stable."

Investment banking fees increased 15 percent to
$883 million, the company said.

Trading revenue slipped 38 percent to $1.26
billion, including an $88 million loss in equities
trading. During the analyst meeting, Dimon said
the outlook for trading would "remain challenging."

"It could be a slow summer,'" said Dimon, 48, who
became president of the combined bank.

Earnings in the J.P. Morgan's consumer
financial-services unit, which includes credit cards,
decreased 27 percent to $620 million in the second
quarter. Dimon predicted "continued growth" from
the company's retail business, and said rising
interest rates would "moderate" demand for mortgage
banking. Credit-card receivables would show "modest
growth," he said.

Treasury services earnings rose 9 percent to $121
million; investment management profit increased 60
percent to $93 million; and JPMorgan Partners, which
makes private and buyout investments, had a profit
of $187 million compared with a loss of $96 million
a year earlier. Dimon said JPMorgan Partners
earnings may slow.

Bank of New York Co., the third biggest
New York-based bank, today said net income increased
to $371 million, or 48 cents a share, from $295 million,
or 39 cents, a year earlier.


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