Enron exposure hurts JP Morgan credit position

Rating agency Standard & Poor’s (S&P) has placed JP Morgan Chase on negative ratings outlook following the financial institution’s unveiling of a $322 million loss in fourth-quarter 2001, in part caused by its exposure to failed US energy company Enron.

The move falls well short of an actual downgrade, but S&P identified a number of factors that, taken together, led to its action. Most notable was JP Morgan Chase’s "large concentration of exposure to Enron and modest Argentine exposure".

Other factors included losses in the firm’s private equity portfolio and a need to downsize following the merger of JP Morgan and Chase Manhattan in December 2000. "Revenue trends have proven disappointing," said S&P. JP Morgan Chase is one of the world’s largest sellers of over-the-counter derivatives.

Commenting on the bank’s exposure to private equity investments, Enron and Argentina, JP Morgan Chase chairman and chief executive William Harrison said: "In this quarter we have moved aggressively to value those exposures, to market, and to build loan loss reserves. While these actions hinder current operating results, they lay the groundwork for stronger earnings recovery when market conditions improve."

Tanya Azarchs, banking analyst at S&P in New York, said a negative outlook does not mean that a rating downgrade is imminent. "It means there may be certain trends that we need to watch for, for anything up to the next three years, that could result in a downgrade." Broker-dealing firms such as Goldman Sachs, Morgan Stanley and Merrill Lynch are also on negative outlook by S&P.