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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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.5

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.

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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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4] GE is a diversified technology, services and financial services company with operations in more than 100 countries and with over 300,000 employees worldwide. In the fiscal 2005, GE reported revenues of US$ 148 billion and net income of US$ 16.35 billion.

5] A manufacturer of agricultural equipment in the US that went on to be a part of CNH Global, the world's second largest manufacturer of agricultural equipment.

6] The Great Crash occurred on October, 29, 1929 saw the share prices at the New York Stock Exchange plummet. The Dow Jones fell 300 points to reach its lowest ever at 44 points. This shrunk investments, savings and led to loss of jobs, resulting in a depression in the US economy that continued through the 1930s.

7] Enacted in 1933, the Act prohibited commercial banks from underwriting securities. Banks had to either be simple lenders or perform underwriting.


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