NEW YORK (CNN/Money) - Shares of J.P. Morgan Chase & Co. were sharply lower Wednesday, as the nation's No. 2 banking company took down a broad range of other financial services stocks with its Tuesday evening earnings warning.

The company said after the market closed Tuesday that bad loans and sluggish trading revenue would lead to third-quarter income well below both year-ago results and Wall Street expectations.

The news sent shares of J.P. Morgan Chase, a component of the Dow Jones industrial average, down more than 10 percent in midday trading. Virtually all major financial stocks were lower as a result of the warning as well.

The company did not give specific third quarter earnings guidance but among analysts who contact earnings tracker First Call Wednesday, the new consensus earnings-per-share forecast for the third quarter was 5 cents, down from the previous forecast of 54 cents and the 51 cents a share it earned before special items in the year-earlier period. The new range of estimates is from a loss of 8 cents per share to earnings per share of 7 cents.

First Call said the consensus full-year EPS forecast of those who have changed estimates is $1.66, down from the previous forecast of $2.30 a share. The company earned $1.65 a share in 2001. The 2003 estimates had also been lowered, with the new consensus at $2.62 a share among those analysts who have changed their target, down from the previous $2.96 a share forecast.

But among major Wall Street firms, only AG Edwards downgraded its recommendation on the stock to "hold" from "buy." Other analysts reiterated their recommendations, despite the earnings adjustments, although many were already giving the stock a more neutral rating than Edwards' earlier buy recommendation.

"We have not been bullish on the stock, but we regret that we did not fully recognize that its attractive yield and low PE were nothing more than a classic value trap," said a note from analysts at Morgan Stanley . They predicted that the stock would trade in a range from $16 to $20.93.

SIDE BAR       Morgan warns on 3Q JP Morgan misses 2Q JP Morgan faces downgrade

Henry McVey, the lead Morgan Stanley analyst on the J.P. Morgan note, does own a position in the stock, and his firm has done investment banking business with J.P. Morgan Chase as well.

Mike Corasaniti, analyst with Keefe Bruyette & Woods, an investment bank specializing in banks and financial services companies, said he believed J.P. Morgan Chase's problems are not short-term ones, but he also maintained his neutral "market perform" rating.

"Given the large increase in reserves in the third quarter period, we now believe that pressure from the rating agencies and the flatter yield curve are this company's biggest hurdles," he wrote. Corasaniti does not have a personal position in J.P. Morgan stock, although KBW does expect to seek investment banking revenue from the firm in the next three months.

Credit ratings agencies Standard & Poor's and Fitch Ratings downgraded Morgan's $42.4 billion in debt Tuesday evening after the warning, a move that could raise borrowing costs for company.