US bank JP Morgan is calling for City rules on company ownership to allow for more consolidation of the UK newspaper market. Like most brokers JP remains cautious on all newspaper shares and says (via cityam.com) that “without a relaxing of M&A rules, the worsening financial situation of some newspapers publishers could eventually force them into trouble with debt and lead to more local title closures”.

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JP expects Daily Mail (LSE: DMGT) & General Trust (DMGT), Trinity Mirror (LSE: TNI) and Johnston Press, the big three UK-owned regional newspaper publishers, to suffer a combined 18 percent drop in advertising revenues next year with print circulation dropping five to six percent. As analysts are now predicting that the regional sector will make 12 percent less money from advertising next year compared to 2008, that slide may almost be a good figure for 2009.

JP has particular fears over Trinity and Johnston and has given an “underweight” rating to both though DMGT retains its “overweight” status mainly due to the company’s B2B titles in the UK and Europe and non-print assets. It’s not the end of newspapers though—a return to growth or an easing of banks’ lending terms or banking covenant terms, would lead JP to reevaluate the sector in 2009, meaning it’s not impossible for it to recommend investing in newspapers next year. But for the moment at least, it’s not looking too good.

Photo Credit: Martin Deutsch