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Chase, J.P. Morgan warn
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December 14, 2000: 11:12 a.m. ET
Two banks, set to merge, say fourth-quarter profits will not meet forecasts
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NEW YORK (CNNfn) - Chase Manhattan Corp. and J.P. Morgan Inc. warned Thursday that lower trading revenue and increased expenses would cause fourth-quarter profits to fall short of Wall Street forecasts, and said they expected to cut about 5,000 jobs as a result of their planned merger.
The banks, which announced their merger in September, said in a statement that fourth-quarter profits for each company would fall from the third quarter as well, due to tough conditions in financial markets as well as higher expenses.
The news sent the Dow Jones industrial average tumbling more than 131 points Thursday morning.
In morning trading Thursday, shares of Chase Manhattan (CMB: Research, Estimates) fell $2.88 to $41.62, while J.P. Morgan (JPM: Research, Estimates) shares fell $10.44 to $153.81. Trading in Chase and J.P. Morgan shares was frozen at the opening bell during a joint conference call with analysts Thursday.
Other financial institutions were dragged down in early trading Thursday as Chase and Morgan's warning sparked fears of a sector slowdown, with shares of Merrill Lynch (MER: Research, Estimates) tumbling $2.12 to $64.94, and shares of Charles Schwab Corp. (SCH: Research, Estimates) fell 88 cents to $29.25.
 Chase, the second-biggest bank in the United States, earned 68 cents a share in the third quarter and was expected to earn 78 cents a share in the fourth quarter, according to First Call, which tracks corporate results and Wall Street forecasts.
J.P. Morgan, the No. 7 U.S. bank, earned $2.77 a share in the third quarter. Analysts had been expecting a profit of $2.62 a share, excluding one-time items, in the fourth quarter. The companies plan to report results on Jan. 17.
Both Chase and J.P. Morgan said their credit portfolios are performing "relatively well" despite deterioration in the external credit environment.
That's a departure from other financial firms such as Bank of America, which blamed higher credit costs when it warned of missing fourth-quarter estimates on Dec. 6.
Investors are concerned about credit costs, which have increased with the number of bad loans banks have made in the wake of six interest rate hikes by the Federal Reserve in the last year.
The companies also said they expect to take a $1.2 billion charge for expenses when their merger is completed. Roughly half of that cost will come in the form of employee severance and compensation costs, with the remainder coming from technology, integration and facilities costs.
The companies said cash expenses for both firms will be higher than in the third quarter, but forecast flat costs next year.
 Chase Capital Partners, the company's private equity arm, will have a more than $300 million loss in carrying value of the publicly traded portion of its portfolio in the fourth quarter.
However, Chase Vice Chairman Marc Shapiro reassured analysts saying it is normal for the division to swing back and forth as equities are sold, which can have either a positive or negative impact on quarterly earnings.
Several thousand job cuts had been widely expected since the companies announced their $29 billion merger, then valued at about $33 billion, on Sept. 13.
"We are laser-light focused on this expense issue, and we've been able to get a much, much clearer view in terms of sizing our business and finding out exactly who we want to have on the A-team," Shapiro said.
The companies decided to merge as a means of surviving in an environment full of larger companies and consolidation. Morgan gets the size and reach that a mass-market bank such as Chase can provide. Meanwhile, Chase wins the prestigious Morgan name.
The companies said they are still on track to complete the merger by the end of the year. Shareholders are expected to vote on the deal at a Dec. 22 meeting. 
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Chase
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