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Wednesday, 17 October, 2001, 16:20 GMT 17:20 UK
Banks blame attacks for profits woes
Chase bank
Merger costs have proved much greater than expected for Chase and JP Morgan
Profits at New York banks have taken a tumble in reaction to a slowing US economy and the 11 September terror attacks.

Number two investment bank JP Morgan Chase, dragged down by the sluggish economy and increased merger costs, said its profits fell 68% for the quarter ended 30 September.

For the quarter, the banking firm earned $449m (309.6m), or 22 cents a share, compared with $1.4bn (965m), or 69 cents a share for the year-ago period.

The financial services firm, formed by the recent merger of JP Morgan and Chase Manhattan, also raised its estimate for merger related costs by more than $1bn.

Cautious investors

The double whammy represented by the slowing economy and attacks on the World Trade Center and Pentagon has raised investor caution, resulting in fewer stock trades and a significant reduction in the commissions reaped by financial services firms.

Profits have also suffered because of a reduction activity among businesses which turn to investment banks to advise on mergers or stock market flotations.

The nation's largest bank, Citigroup, said it earned $3.26bn (2.25bn), or 63 cents a share, in the third quarter, compared with $3.53bn (2.43bn), or 68 cents a share, a year ago.

Lower interest rates

Citigroup noted that profits rose at its consumer division - up 27% to $1.16bn (799m) - amid a surge in home buying and a boom in home refinancing.

Declining interest rates, a result of nine interest rate cuts by the US central bank, have not only resulted in increased profits but reduced costs for many banks.

But declining interest in the stock market among individual investors has affected the investment bank operations of these firms.

In addition, business interruption expenses and insurance costs have risen in wake of the 11 September attacks.

Citigroup, which owns Hartford, Connecticut-based Travelers, is braced for reduced earnings from its insurance unit.

Merrill cuts?

Also on Wednesday, speculation swirled that investment bank Merrill Lynch may cut up to as many as 10,000 jobs, due to the slowing US economy.

The firm responded by saying that no firm decisions had been made on any overall job cut figure.

"While the pace of this review is accelerating, decisions will be made business by business, and we have no overall company-wide headcount reduction target," the company said.

Merrill Lynch said it is reviewing all of its businesses amid a "deteriorating revenue environment" to ensure its operations were "adequately sized".

Goldman Sachs, JP Morgan Chase and Morgan Stanley, along with other financial services firms, have looked at reductions in employee numbers as a way of cutting costs and remaining competitive.

"In this challenging environment, we think the best strategy is a tight focus on controlling risk and expenses," said JP Morgan Chase chief executive William Harrison Jr.

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The BBC's Mike Sergeant
"Thousands of jobs are at risk"
See also:

16 Oct 01 | Business
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