Investment bank JP Morgan Chase reported diminished profits in its fourth-quarter results yesterday blaming losses in its private equity operations.
The bank, formed by Chase Manhattan's December 31 purchase of JP Morgan, reported operating profits of $763m or 34 cents a share in the fourth-quarter, down 65 per cent on last year’s $2.2bn or $1.10 per share.
JP Morgan Partners, the bank’s private equity arm, posted losses of $92m compared with a gain of $1.62bn last year. The losses were partly due to a drop in the value of their holdings in two regional telephone companies, Triton PCS Holdings Inc and TeleCorp PCS, said Mark Shapiro, vice chairman of Morgan Chase.
“Our results were obviously lower than we would have liked, driven largely by the differential in the rate of growth of revenue and expenses, ” Shapiro said yesterday.
Expenses rose 24 per cent in the quarter to $5.74bn and operating revenues fell 12 per cent to $7.57bn. Earnings per share of 37 cents missed the Wall Street forecast of 45 cents.
This is not the first time that Morgan Chase's private equity business faces some difficulty. In Q3 of 2000, the investments in Triton and Telecorp were at the centre of a $25m loss in the division. The bank at the time dismissed suggestions that the situation was serious. “This is not a business for the fainthearted or those who are obsessed with quarterly accounting results”, said Dina Dublon, the bank's CFO.
Shortly after these results, the bank made it very clear that it had not at all lost confidence in private equity as a revenue generator and announced that it would allocate a further $8bn to its private equity arm over the next five years.