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To: marginmike who wrote (11086)	8/24/2001 3:14:37 PM
From: Challo Jeregy	Respond to of 209892

biz.yahoo.com TheStreet.com - View from TSC More Dark Clouds Gather Over J.P. Morgan's Venture Capital Unit Telecom holdings are now dragging on the bank's portfolio. By Eileen Kinsella Staff Reporter Venture capital, the once-hot ticket to investing in New Economy companies, has become the problem child of profits at J.P. Morgan Chase (NYSE: JPM - news) , with writedowns outweighing gains in three of the past four quarters. Now with little more than a month left in the current quarter, clouds are starting to gather over the sizable telecom holdings of the second-largest bank in the country. Salomon Smith Barney analyst Ruchi Madan said in a recent report that the bank is now running a $210 million negative mark-to-market position in its J.P. Morgan Partners portfolio, primarily because of its two largest holdings Triton PCS (NYSE: TPC - news) and Telecorp PCS (Nasdaq: TLCP - news) . Triton is down about 4% for the quarter, and Telecorp has tumbled about 25%. (Salomon or its affiliates have had an underwriting relationship with J.P. Morgan Chase in the past three years.) "These two positions account for about $122 million of the $210 million negative mark-to-market in this quarter," said Madan. "We don't expect JPM to reduce its stake in Triton in the near term. In early June, JPM committed to not sell its Triton holdings at that time and agreed to act with Triton's management in 'determining the timing and extent of future sales.'" Triton accounts for about 38% of the public portfolio. While the current Thomson Financial/First Call earnings estimate for J.P. Morgan's third quarter is 68 cents a share, Madan expects income of 60 cents a share, a forecast that factors in a $100 million negative mark-to-market position. J.P. Morgan Chase declined to comment on the portfolio's current status or the possibility of an earnings shortfall. Investors and analysts aren't likely to keep shrugging off the losses for too much longer. The VC unit started showing signs of weakness in the bank's third-quarter earnings report last year. The bank posted earnings of 68 cents, far below the consensus of 93 cents. When another loss from the venture capital division followed in the fourth quarter, investors and analysts gave the bank some leeway as the former Chase geared up for the merger with J.P. Morgan. Most thought the bank was simply taking its medicine and getting set for growth. But amid an extended tech market rout, the risk seems to have run deeper than anyone expected. In a regulatory filing last quarter, J.P. Morgan admitted that a weak IPO and M&A environment had hampered its ability to unwind these positions without taking a hit to earnings. A number of banks, including Wells Fargo (NYSE: WFC - news) , which rushed to get in on the tech upstart and IPO boom, are finding it tough to make a clean break from their former highflying investments. In general, "banks lost their discipline with these companies by lending against [the companies'] balance sheets as opposed to against cash flow and income," says Don Phillips, chief investment officer for the private equity group at West AM, a firm with about $36 billion in assets under management. Phillips says in a number of cases in which upstarts secured large loan or principal investments, the loans were made against balance sheets that were inflated simply because of a lofty stock prices. When the stocks of some tech and telecom upstarts went into a freefall with the Nasdaq shakeout last spring, the lack of cash flow made it difficult for companies to repay their loans and even more difficult for venture capitalists to recoup their investments. After J.P. Morgan's venture capital unit swung back to the black in the first quarter, investors breathed a sigh of relief. A consensus started building that the bank had turned the corner on tech and telecom losses. But by the time the second quarter was in full swing, the bank was singing a familiar tune. The song may remain the same for the third quarter.