JPMorgan Chase - A Tale of Two Mergers
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Case Code: BSTR222 Case Length: 16 Pages Period: 1997-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: JP Morgan, Chase Manhattan, Bank One Industry: Banking and Financial Services Countries: US Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background Note
Jack Pierpont Morgan (Jack), son of an American businessman named Janius S. Morgan, joined a Philadelphia-based banking company named Drexel & Company as a promoter, to form Drexel, Morgan and Company in 1871. In 1895, the company was reorganized and renamed JP Morgan Company. The company began financing major businesses including GE4 and International Harvester. In 1901, it was instrumental in the creation of the US Steel, the largest corporate enterprise in the world at that time. The Great Crash6 of October 1929 and the subsequent depression led to a major structural transformation in the US banking industry. JP Morgan financed the US government and other large corporations during the Great Depression and the two world wars.
The Glass-Steagall Act7 of 1933 ushered in an era of strict government regulation of the US banking and financial services industry. The separation of commercial and investment banking as envisaged in this act led Harry Morgan, one of Jack's sons, and two other partners, to branch out and form a separate investment banking company named Morgan Stanley. Jack died in 1943 and was succeeded by Thomas Lamont, the first outsider to manage JP Morgan. The period after World War II saw rapid economic growth and a pressing need for more capital. Under the chairmanship of Henry Clay Alexander, the company merged with Guaranty Trust Company, a New York-based commercial bank in 1959, which was four times JP Morgan's size.
The new entity, named Morgan Guaranty Trust Company, thrived on the huge demand for capital by the US corporates. The Glass-Steagall Act had many prohibitions such as restricting the income from securities for commercial banks to 10% of the bank's total income. This saw a decline in JP Morgan's revenues in the US...
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