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William Harrison Jr. could sure use a pair of hip waders. The J.P. Morgan Chase (JPM) CEO shocked the market when he warned in a Sept. 17 conference call that third-quarter earnings at his already beleaguered bank would fall far short of expectations. The culprit? Cratering trading volume and a slew of poor telecom loans.

Rating agencies responded with a downgrade, and more nasty stuff may be heading Harrison's way. If JPM'S trading volume doesn't pick up in the fourth quarter, Standard & Poor's warned it may downgrade further. That could deal a crushing blow to JPM, because of its position as the largest player in the derivatives market. One more downgrade would force it to put up millions in collateral or to forfeit deals. And Harrison & Co. still have nearly $1 billion in possible exposure to Enron that has yet to be accounted for.

Some say JPM is starting to look a lot like Citibank (C) in the early '90s, when bad loans nearly sank the bank. On second thought, forget the waders--what Harrison really needs is a lifeboat. On Sept. 18, Merrill Lynch (MER) fired two high-ranking investment bankers for refusal to cooperate with investigations into Merrill's role in the collapse of Enron (ENRNQ). Terminated were Thomas Davis, the New York-based vice-chairman who, until October, 2001, was head of investment banking, and Schuyler Tilney, who headed the firm's Houston-based energy group and worked closely with Enron CFO Andrew Fastow. Davis was due to retire in November. The Securities & Exchange Commission and the Justice Dept. have separate probes into Merrill's alleged involvement in transactions that helped Enron book inflated profits and hide bad assets. Merrill said it had no evidence that any of its employees acted improperly. Davis' lawyer, Thomas J. Fitzpatrick said he advised Davis not to testify. Tilney's lawyer would not comment, nor would the SEC or Justice. The political heat has finally melted the auction of Hershey Foods (HSY). On Sept. 18, the chocolate king announced that Hershey Trust Co., which controls 77% of the candymaker's voting stock, had shelved its plans to sell Hershey Foods. According to a source close to the situation, the move came as Hershey was set to announce a $12.5 billion deal with chewing gum giant Wrigley (WWY). Public opposition to the sale had been building, most notably from Pennsylvania Attorney General Mike Fisher. While the trust's decision may be a relief to Hershey CEO Richard Lenny, he still faces pressure to boost growth. Software Bellwether Oracle (ORCL) reported another tough quarter on Sept. 17. Revenues at the Redwood Shores (Calif.) giant were down 10%, to $2.03 billion, and net income was down 33%, to $342.7 million. Worse, new software licenses, an important sign of future growth, were down 23%, to $549 million, for the quarter ended Aug. 31. But revenues from updates of existing Oracle software installations were up 9%, to $620 million--a sure sign that buyers are postponing big purchases and trying to make do with what they've got. Business heavyweights are urging reforms to curb out-of-control CEO pay. On Sept. 18, the Conference Board panel said that board compensation committees--not the chief executive and not the top human-resources official--should retain outside pay consultants. They also argue that the boss's salary should no longer be set using industry averages or past compensation levels. The group, co-chaired by investment banker Peter Peterson, also urged the expensing of stock options, shareholder approval of all stock plans, and advance public notice of an executive's intent to sell shares. No less crucial, the group agreed that directors need to show more backbone in the boardroom. General Motors (GM) averted a strike by its Canadian workers on Sept. 17 with a new three-year contract that includes wage hikes and a commitment to offset a Quebec plant closing with $506 million in new Canadian investment that could add up to 550 jobs elsewhere. But talks won't be nearly this easy at struggling Ford Motor (F) and DaimlerChrysler (DCX). Both companies plan to close plants in Ontario to cope with lost market share. A strike in Canada against either company would quickly snarl operations across North America. Canadian Auto Workers President Basil "Buzz" Hargrove will announce on Sept. 23 which auto maker he'll tackle next. -- EDS (EDS) expects third-quarter earnings of 12 cents to 15 cents, instead of the 74 cents it forecast earlier.

-- MetLife (MET) hired Cushman & Wakefield to sell $2 billion of commercial real estate.

-- The FCC agreed to let BellSouth (BLS) provide long-distance service in five more states. Investors, jittery over forecasts, bucked at Kroger's (KR) Sept. 17 warning that earnings gains this year may be as low as 5% to 7%, instead of the 10% to 12% expected earlier. As its second-quarter results lagged expectations, Kroger's stock fell 12.5%. Execs blame competition, consolidation, and price-cutting.


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