JPMorgan Chase - A Tale of Two Mergers

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Case Details:

Case Code : BSTR222
Case Length : 16 Pages
Pages Period : 1997-2006
Organization : JP Morgan, Chase Manhattan, Bank One
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Banking

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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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...

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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...

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