4 More Firms to Alter Accounting on Options
J.P. Morgan Chase & Co., American Express Co., MetLife Inc. and Bank of America Corp. will begin expensing stock options next year, joining a growing list of financial institutions, insurance firms and manufacturers adopting the practice.
The move at J.P. Morgan was outlined in a memorandum to the bank’s employees from Chairman and Chief Executive William B. Harrison Jr. The memo was made public Monday by the bank.
Harrison also said the New York-based bank has created a policy review office to examine “transactions and products in terms of appropriateness, ethics and reputational risk.”
J.P. Morgan and the nation’s largest bank, Citigroup Inc., were recently accused by congressional investigators of helping Enron Corp. disguise its debt and boost its cash flow. The Houston-based energy trading company filed for bankruptcy protection Dec. 2.
Citigroup last week said it would set up a committee on governance and ensure its loans were properly reported. Citigroup also said it would charge its stock options as an expense against earnings.
The move to expense stock options has been urged by corporate reformers who say this will more accurately reflect the effect on shareholders than the current system, which has options in footnotes of annual reports.
Harrison said the decision on options was being announced “in partnership with the Financial Services Forum--an organization made up of 21 chief executives of the largest, most-diversified financial services firms in the United States--because we believe it would be best for investors to have consistency across our industry.”
Harrison said the effect on the bank’s earnings will be about 7 cents a share in 2003 and 20 cents a share when fully phased in. The effect is higher, he said, because “we are one of the few companies that offers an options program to almost all employees.”
American Express, headquartered in New York, said that “all future employee stock option grants beginning in 2003 will be expensed over the stock option vesting period, based on the fair value at the date the options are granted.” It said that if the system had been in effect this year, the effect on earnings would have been 7 cents a share.
Bank of America in Charlotte, N.C., said that it also will expense options. MetLife, based in New York, said that if the decision were applied to 2002 earnings it would shave 2 to 3 cents a share from profit.
