Chase Manhattan may acquire JP Morgan...
In a move that could end
13 September 2000
J P Morgan, one of the most venerable names in US investment banking, was set up by J Pierpont Morgan, a legendary banker till his death in 1913. It is also the country's fifth biggest bank holding company with some $266 billion in assets and has been long known for its brand name and global reach.The deal for the possible takeover of the investment banking firm by Chase, is said to be valued at $30 billion. Speculation about the investment bank's future was already fuelled when it emerged that Douglas Warner, its chairman and chief executive officer, had cancelled an appearance at an investor conference scheduled for this week.
The deal, if completed, would bring to an end Chase's efforts to acquire an investment bank, which has become one of Wall Street's longest running soap operas with Chase playing the role of disappointed suitor on several previous occasions. It would also, further transform the global financial services industry.
The resulting company would boast $35 billion in capital and leading positions in syndicated lending, debt underwriting, trading, derivatives, private equity and asset management. However, the combination would still be far from the top of the table in the very investment banking businesses that both so want to build -- particularly equity underwriting.
Moreover, the integration efforts involved in such a merger could be Herculean since both banks have giant fixed income and trading departments, and globally known brand names. As a result of this, there are likely to be substantial job losses on the takeover. While a string of global banking mergers has fuelled a sharp speculative rise in the value of JP Morgan's stock in the last three months, industry analysts say that Chase is paying too high a price for the acquisition.
Industry analysts are also surprised at the deal, since it was only last week that Mr Warner criticised the 'consolidation wave' sweeping New York's high finance. If Mr Warner succeeds in getting $200 a share for the company, he will have nearly doubled its stock price since March. JP Morgan has also been in the news recently for the resignation of its high profile, and much valued, chief financial officer, Peter Hancock.
Some of the more prominent recent takeovers of investment banking firms include, UBS's $12 billion acquisition of PaineWebber, Credit Suisse First Boston's $11.5 billion bid for Donaldson Lufkin and Jenrette, and Citigroup's $31.1 billion offer for Associates First Capital.For Chase Manhattan, which has been on an acquisition spree in the recent past, this deal would be the biggest. In May, Chase bought the Beacon Group, a mergers and acquisition boutique, for about $500 million, two months after it announced the $7.75 billion purchase of Robert Fleming, the UK investment bank and asset management business. A little over a year ago it paid $1.35 billion for Hambrecht & Quist, the west-coast investment bank.