J.P. Morgan, American Express, Bank of America to expense stock options

Tuesday, August 13th 2002, 12:00 am
By: News On 6

NEW YORK (AP) _ J.P. Morgan Chase & Co., American Express and Bank of America will begin expensing stock options next year, joining a growing list of financial institutions 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 that 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, were recently accused by congressional investigators of helping Enron disguise its debt and boost its cash flow. The Houston-based energy trading company declared bankruptcy Dec. 2.

Citigroup last week said it would set up a new board 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 earnings has been urged by corporate reformers who argue that this more accurately reflects the impact on shareholders than the current system, which has options listed in footnotes of annual reports.

Harrison said the decision on options was being announced ``in partnership with the Financial Services Forum _ an organization comprised of 21 CEOs 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 impact on the bank's earnings will be about 7 cents a share in 2003 and 20 cents a share when fully phased in. The impact is higher than on other institutions, he said, because ``we are one of the few companies that offer an options program to almost all employees.''

American Express, headquartered in New York, said in a statement 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 impact on earnings would have been 7 cents a share.

Bank of America in Charlotte, N.C., said in a statement that it, too, will expense options. It urged the Financial Accounting Standards Board ``to establish a standard process companies should use to expense stock options so there will be a uniform methodology.''

General Motors, General Electric and Amazon.com are among the other major companies that have announced they will begin charging stock options as an expense against earnings next year.