Investment pros puzzled by gold''s stubborn rise

By John Crudele
New York Post
January 31, 2002

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.
quot;But that doesn't mean it won't be a $10 stock.quot;

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.

quot;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.quot;