J. P. Morgan Posts $586-Million Loss

J. P. Morgan & Co. on Wednesday posted a $586.4-million net loss for its second quarter as a result of its decision to add $875 million to its reserve for possible bad loans.

New York-based Morgan, the nation’s fourth-largest bank holding company, had been expected to take a big loan-loss provision, following other major U.S. banks that had done so in acknowledgement of anticipated problems in collecting loans to troubled developing nations.

Morgan had a profit of $237 million in the second quarter of 1986.

Most of the other major banks that previously announced big loan-loss provisions also said they expected to take major second-quarter losses as a result. Citicorp, the nation’s biggest bank holding company, said in May that it would take a $3-billion loan-loss provision and that it expected to lose $2.5 billion in the three months ended June 30.

By sharply boosting reserves, the banks reduce their current earnings but establish a cushion to protect future earnings from loans that must be written off or disposed of at a loss.

Morgan said in a news release that in its quarterly credit review it examined its outstanding loans in light of the reserves taken by other banks recently, as well as economic developments affecting debtors.

“Based on this review, it was concluded that a second-quarter provision of $875 million was appropriate,” Morgan said.

Morgan also said it expected to show a profit for the full year and intends to continue paying its common stock dividend.

The company’s total allowance for loan losses was $1.76 billion as of June 30, or 5.35% of total loans outstanding, compared to $847 million, or 2.22%, a year earlier.

Morgan said it had about $5.4 billion in loans outstanding to developing nations at the end of the quarter.