- Is J.P. Morgan Chase too big to fail?
-
- This question is admittedly a bit premature. But you
can bet this concern will start going around in the next few weeks if the
giant New York bank continues its recent streak of bad luck.
-
- Back in early December this column speculated that Global
Crossing Ltd. would be the next Enron, bitten by the bankruptcy bug. That
happened this week as Global entered a pre-packaged bankruptcy with a
couple
of Far East firms.
-
- In that December column, I also speculated on the much
more important aspect of Global Crossing's problems - that J.P. Morgan
Chase, Citicorp and BankAmerica were each lead bankers for one part or
another of Global's borrowings.
-
- Global is said to have spent $15 billion in five years
building a fiber-optic cable network around the world. Those banks largely
got the money together, including putting in a lot of their own.
-
- Even though other banks were lured in by Global
Crossing's
pitch, the focus will be on J.P Morgan Chase mainly because the company
has been bathing in misfortune lately - having been heavily involved in
Kmart and Enron as well.
-
- The Chase part of the organization, meanwhile, made heavy
and risky bets in the dot.con bubble a couple years ago. And we all know
how that turned out. Those losses were one of the reasons Chase ended up
in a merger with J.P. Morgan.
-
- And if corporate failures weren't enough, J.P. Morgan
Chase also was heavily involved in the banking situation in Argentina.
Could all of this lead to a big problem? Yes. Could all of this lead to
- just perhaps - the failure of J.P. Morgan? Probably not, but only because
the giant banking conglomerate is too big for Washington to allow it to
fail.
-
- PNC Bank this week shocked Wall Street by increasing
its losses, mainly because of deficits that lay hidden off its main books.
PNC, unlike J.P. Morgan Chase, isn't that important to the U.S. financial
system. But the fears are similar.
-
- Charles Peabody, one of Wall Street's best banking
analysts,
agrees that J.P. Morgan Chase will be preserved by the government, if it
ever comes to that. "But that doesn't mean it won't be a $10
stock."
-
- J.P. Morgan's shares were selling at $33 yesterday. But
that's down from over $40 in December. The stock had been this low before:
during the terror scare in September. Although it still recommends the
stock, Merrill Lynch this week reduced J.P. Morgan Chase's forecast because
it felt expenses would be higher than expected.
-
- But what has the pessimists worried, very worried, is
that some banks - think PNC - haven't been forthright in their financial
reporting. Part of this is just a general concern about bank accounting,
but it also has something specific to do with J.P. Morgan Chase
itself.
-
- Yesterday, for instance, J.P. Morgan Chase told Argentine
authorities that a bank it co-owns down there may have broken the law by
illegally moving $260 million overseas as that country's troubles
increased.
-
-
- Peabody, who works at a investment boutique called
Ventura
Capital, recently laid it all out for his clients.
-
- "I remain convinced that J.P. Morgan Chase will
emerge as the poster child for what ails this economy - excessive leverage,
financial engineering, aggressive accounting and conflicted
interests."
Uggh!
- ___
-
- http://www.nypost.com
|
