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
Excerpts
The Merger
Meanwhile, JP Morgan planned to merge with Merrill Lynch (Lynch). However, Lynch felt that both of them offered similar services and thus would limit their growth and turned down the deal. On September 06, 2000, a German magazine reported that Deutsche Bank was in talks with JP Morgan for a likely merger deal - but the parties could not come to an agreement on the terms. On September 17, 2000, JP Morgan and Chase made an announcement that they would merge. After this announcement, Warner said that vast product portfolio but limited client base at JP Morgan and the reverse situation at Chase was the prime factor that led to the merger. Referring to the situation at JP Morgan, Warner said, "Ton of content and not enough clients." According to the deal, the shareholders of JP Morgan received 3.7 shares of Chase for each share they held...
The Troubles Begin
Problems did begin to crop up soon after the merger. The US economy was experiencing a downturn after the dotcom bubble burst in March 2000. During the mid-1990s, telecom companies in the US had borrowed huge amounts to finance their expansion plans expecting rapid growth in the industry. Companies overbuilt telecom infrastructure and had huge capacities which resulted in oversupply leading to a decline in revenues for many companies. By early 2001, the telecommunications bubble had burst. JP Morgan Chase had financed several telecom companies which went bankrupt at this time. One such firm was Global Crossing, which JP Morgan had financed to the extent of US$ 100 million while Chase had an exposure of US$ 20 million. The company filed for bankruptcy on January 28, 2002...
Aquisition of Bank One
JP Morgan Chase's performance improved in the beginning of 2003. With a better performance in the investment banking segment plus the strong auto loan and mortgage business, JP Morgan Chase recorded a net income of US$ 1.4 billion on total revenues of US$ 7.6 billion in the first quarter of 2003, compared to US$ 982 million (on total revenues of US$ 6.8 billion in the first quarter of 2002). The company's stock, trading below US$ 20 in 2002, crossed US$ 30 mark in May 2003 but was still less than at the time of the merger with Chase. In May 2003, Harrison hinted at buying another retail bank if JP Morgan Chase's stock price increased further. However, analysts said that Harrison had already made a mistake in acquiring JP Morgan in 2000 and the merged entity was still facing many problems. The integration problems would be exacerbated by another acquisition at this point. Burnham Financial Services Fund Manager Anton V. Schutz, commented, "Given their lack of skill at integration, it's unimaginable that anyone would want to sell to them..."
The Road Ahead
Though the benefits of JP Morgan Chase - Bank One merger were clear, analysts pointed out a few difficulties that the merged entity might face. JP Morgan Chase did not have significant presence in the retail brokerage business and is clearly behind its competitors in the booming hedge-fund industry. Its equity underwriting and merger and acquisitions consulting businesses are also said to be not very strong. Dimon could face competition not only from national players, but also from regional players like Commerce Bancorp who plan to establish national presence and are already competing with JP Morgan Chase in many states in the US. JP Morgan Chase had also not opened many retail branches while the rest of the banking industry has been increasing its count of retail outlets. Also, two consecutive quarterly earnings just after the merger had been disappointing; high merger costs and wages, especially in the investment banking division, had been blamed for this...
Exhibits
Exhibit I: Leading US Banks - Merger and Acquisition Deals
Exhibit II: JPMorgan Chase & Company
Exhibit III: JPMorgan Financial Performance between 2000 and 1998
Exhibit IV: Recent Financial Performance of JPMorgan Chase
Exhibit V(A): JPMorgan Chase Stock Price (1995-2000)
Exhibit V(B): JPMorgan Chase Stock Price (2000-06)
Exhibit VI: JPMorgan Chase Businesses after the Merger
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