The number two US bank, JP Morgan Chase, has warned that its earnings have been hard hit in recent months by bad loans to telecoms and cable companies and by weak trading performance.

A quick rebound from current problems is not assured,

Standard & Poor's

Consequently, the bank said it will be reporting sharply lower earnings for the July to September period than it did during the previous quarter.

Two leading credit rating agencies - Standard & Poor's (S&P) and Fitch Ratings - downgraded the bank's debts following the announcement.

"A quick rebound from current problems is not assured," S&P said, highlighting the difficulties the bank is facing with regards to its exposure to the failed energy trader Enron as well as its losses in crisis struck Argentina and on its stock market investments.

Fitch predicted that the "challenging conditions [will] continue during the intermediate term".

Telecoms regrets

JP Morgan Chase has been a major lender to the telecoms sector in recent years.

"In hindsight, we had too much concentration in the telecom space and did not anticipate the level of deterioration this year," said chairman and chief executive William Harrison.

"The company will continue to focus on managing expenses to adapt to current market opportunities."

Troubled banks

Analysts said JP Morgan Chase's profit warning was bad news for the banking sector as a whole.

"It really signals that, in general, banks are going to see a big increase in nonperforming assets," said Fox-Pitt, Kelton analyst Reilly Tierney.

"It would be unlikely to me that they could make any money this quarter.

"It would be a challenge to break even".

JP Morgan Chase's profit warning came after the US markets closed.

Its share price fell sharply in after-hours trading and is expected to fall when the US markets open on Wednesday.