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Jpmorgan chase buys bankone second largest bank { January 15 2004 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A18242-2004Jan14.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A18242-2004Jan14.html
J.P. Morgan Chase Agrees to Buy Bank One
$58 Billion Stock Swap Would Create a $1.1 Trillion Entity Rivaling Citigroup
By Kathleen Day
Washington Post Staff Writer
Thursday, January 15, 2004; Page E01
J.P. Morgan Chase & Co., the nation's second-largest bank, has agreed to buy Bank One Corp. in a stock swap valued at $58 billion, the companies announced yesterday.
The merger, which is subject to approval by shareholders and regulators, would create a $1.1 trillion bank that would rival Citigroup, the world's largest financial institution, in retail and corporate banking -- and in asset size.
J.P. Morgan, which operates in only four states -- New York, New Jersey, Connecticut and Texas -- would gain a foothold in more than a dozen additional states by buying Chicago-based Bank One. The deal would give it retail outlets throughout the Midwest, as far south as Florida and as far west as Arizona, Utah and Colorado. The combined companies would become the nation's second-largest credit-card issuer, behind Citigroup.
J.P. Morgan is already the largest dealer in the world in complex financial contracts, known as derivatives, that have become key tools for firms in a broad spectrum of industries to manage risk.
The deal continues a decade-long consolidation of big banks into even bigger companies in the U.S. financial arena, where size and a broad array of services give an organization a competitive advantage, industry experts say. The flurry of mergers in the 1990s slowed somewhat in recent years, only to pick up again recently.
The J.P. Morgan deal is the second major proposed bank merger in four months. Bank of America Corp., the nation's third-largest bank, agreed in October to pay $45.5 billion for FleetBoston Financial Corp., the seventh-largest, in a pending deal that, until yesterday's announcement by J.P. Morgan, would have created the second-largest bank in the United States.
Citigroup, which has assets of about $1.2 trillion, was created in 1998 by a merger of banking giant Citicorp and insurance behemoth Travelers Group Inc.
The new J.P. Morgan Chase & Co. would be based in New York. J.P. Morgan's chairman and chief executive, William B. Harrison, 60, would be chairman and chief executive of the new entity, and Bank One chairman and chief executive James Dimon, 47, would be president and chief operating officer. In 2006, Dimon would succeed Harrison as chief executive and Harrison would continue as chairman, the companies said.
As many as 10,000 of the banks' combined work forces of 175,000 would be eliminated, the banks said. Most of the overlap is in administrative and consumer functions.
Dimon was ousted as president of Citigroup by its strong-willed chief executive, Sanford I. Weill, shortly after the merger with Travelers. Now, analysts say, Dimon has helped build an organization that can compete head-to-head with Citigroup and possibly provide him with sweet revenge.
"What this really does is finally create another Citigroup," said Craig Woker, an analyst at independent research firm Morningstar Inc. "From a strategic standpoint this makes sense. Bank One brings a stronger retail presence while J.P. Morgan is the stronger commercial and global bank."
Bank One stockholders would receive 1.32 shares of J.P. Morgan for each of their shares. J.P. Morgan's stock closed yesterday at $39.22, up 32 cents, and Bank One's stock closed at $45.22, up 61 cents, both on the New York Stock Exchange.
Talks between Harrison and Dimon began in earnest in November, sources said. To preserve secrecy, negotiators began to refer to J.P. Morgan as "Jupiter" and to Bank One as "Apollo," according to sources and to a memo that a public relations firm sent to reporters by mistake.
The new company would have a 16-member board of directors, with seven outside directors from J.P. Morgan, seven outside directors from Bank One, Harrison and Dimon.
J.P. Morgan itself is the product of a merger in September 2000 between Chase Manhattan Corp. and J.P. Morgan & Co., two of the most storied names in banking.
"The big question now is, who could be next?" said Dick Bove, a banking analyst from Hoefer & Arnett, an independent research firm in San Francisco.
He said that when George H.W. Bush was president, the top 10 banks in the world were Japanese. The White House adopted a policy of trying to encourage mergers among U.S. banks to create conglomerates that could compete globally, he said.
Now, Bove said, with Citigroup and the two most recently announced mergers -- between Bank of America and Fleet, and between J.P. Morgan and Bank One -- the nation has three "super-tier" banks. A fourth is unlikely, he said, though it might be possible through a combination of Wachovia, Wells Fargo and another regional player.
These new giants, he and other analysts said, threaten Wall Street investment houses such as Merrill Lynch and Goldman Sachs as standalone firms. The banking giants have more capital and more clients and can cut prices to gain market share, the analysts said. The next wave of financial mergers could be banks buying up brokerages, as Citigroup did, to create one-stop financial houses offering a full array of services, including deposit-taking, insurance and underwriting.
© 2004 The Washington Post Company
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