MOODY'S CHANGES OUTLOOK ON LONG-TERM RATINGS OF JPM CHASE TO NEGATIVE
New York, July 25, 2002 -- Moody's Investors Service changed the outlook of all of the long-term ratings of J.P. Morgan Chase & Co. (senior unsecured at Aa3) and its subsidiaries to negative from stable.
The outlook change reflects Moody's concern about asset quality within J.P. Morgan Chase's wholesale banking portfolio. Credit risk concentrations may lead to increasing credit expense, potentially pressuring net income. Particularly worrisome concentrations are the troubled sectors of telecommunications, media and technology, and within the merchant energy industry.
J.P. Morgan Chase's management has pursued a strategy of leveraging its commercial banking franchise to build its position in investment banking. This strategy is falling short of expectations, as evidenced by relatively weak income performance by the investment bank in the second quarter. Given recent problems in financial markets, and the sharp downturn in wholesale activities, successful execution of this strategy will be even more challenging, the rating agency says.
Moody's says that J.P. Morgan Chase might also suffer damage to its image and reputation, as well as higher legal expenses and litigation settlement costs, resulting from its role in Enron and other high-profile corporate defaults. This may hinder the business momentum and ongoing profitability of the investment bank, even when markets recover.
Moody's says that J.P. Morgan Chase has ample liquidity at both the bank and the holding company. The credit, market, and liquidity risks of its derivatives business are also well controlled. J.P. Morgan Chase also maintains a substantial base of tangible common equity, and its Tier One ratio currently stands at 8.7%.
Moody's also notes that J.P. Morgan's other businesses - retail, investment management and securities processing - help cushion the volatility of earnings from investment banking and venture capital.
Moody's said that it would place particular analytical emphasis on J.P. Morgan's credit underwriting and portfolio management.
The following lists the principal subsidiaries and ratings that were assigned a negative outlook:
J.P. Morgan Chase & Co. - senior debt rating of Aa3; subordinated debt rating of A1; preferred stock rating of A2; preferred shelf of (P)A2; and an issuer rating of Aa3.
JPMorgan Chase Bank - long-term bank deposit rating of Aa2; subordinated debt rating of Aa3; long-term other senior obligations of Aa2; long-term issuer rating of Aa2; and a bank financial strength rating of B+.
Various Chase Capital Trusts, I-IX - backed preferred stock rating of A1.
J.P. Morgan Chase & Co. had assets of $697.8 billion and stockholder's equity of $41.7 billion at June 30, 2002.
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