Chase buys JP Morgan for $ 36 bn

Chase buys JP Morgan for $ 36 bn
AGENCIES

NEW YORK, Sept 13: Chase Manhattan Corp, a banking giant formed from mergers of three New York banks, has agreed to acquire venerable JP Morgan & Co for about $36 billion in stock, a deal that would bring together two of the oldest names in US finance.

The deal, which both companies confirmed Wednesday, marks the latest in a series of huge transactions in the rapidly consolidating financial-services industry. It is expected to end the independence of one of the most prestigious banks in business history, one that fell behind the financial-services giants formed in recent years such as Citigroup Inc and Morgan Stanley Dean Witter & Co. The negotiations underscore a failed attempt by JP Morgan to build itself into a full-service investment bank and crack the big leagues on Wall Street.

The deal highlights how many of today's global financial giants are UScompanies that have leapfrogged over their European counterparts. In effect,the globalization of finance has become the Americanization of finance. Many UK financial institutions are marginal players or have been swallowed up; only a handful of European banks such as Deutsche Bank AG remain seriouscontenders to be a global survivor.

The boards of both Chase and JP Morgan approved the deal Tuesday. Each share of JP Morgan was set to be exchanged for 3.7 shares of Chase. The deal would create a financial titan with a combined $675 billion in assets. In size it would rank behind only Citigroup, with $800 billion, and Bank of America, with $680 billion. The institution would link Chase's powerful syndicated-lending franchise and its venture-capital arm with Morgan's profitable $400 billion in assets under management at its private-banking arm. The deal also would give Chase a stake in a major mutual-fund company. JP Morgan owns just under half of American Century Investments, which has about 75 no-load mutual funds and nearly $100 billion in fund assets.

The name of the new behemoth would be JP Morgan Chase. Morgan's Mr Warner would be chairman of the combined company. Chase Chairman William Harrisonwould be chief executive. The two would be co-heads of the executive committee.

But clearly this would be a takeover: The board would consist of eight directors from Chase and five from JP Morgan. The management committee will have 11 members from Chase, four from Morgan. Geoffrey Boisi, the head of investment banking at Chase, whose father was a senior JP Morgan executive, is to be co-head of investment banking at the combined institution. The otherco-head: Donald Layton -- a Chase executive, not a Morgan executive. In fact, as of Tuesday night, the only senior Chase staffer confirmed to be leaving as a result of the deal was Neal Garonzik, Chase's head of asset management, an area in which Morgan is strong.

Speculation about a deal had mounted for weeks. On Friday, JP Morgan's chief financial officer resigned, and Tuesday Douglas Warner, the firm's chairman and chief executive, canceled a long-planned speech, sending the stock higher.

Financially, the deal looks expensive for Chase. Because Chase trades at a modest 12 times earnings, and the price is in the range of 17 times earnings, the deal would appear to dilute Chase's earnings before any plannedexpense reductions The transaction would cap a tumultuous decade at JP Morgan. Ten years ago, it was the biggest bank in the nation and a model for other institutions because of its early shift to investment banking and its aversion to risky real-estate loans. The former Chemical Banking Corp, Manufacturers Hanover Trust and Chase Manhattan were on their backs, hurt by bad real-estate loans and lending to high-risk borrowers. But Chemical acquired Manufacturers Hanover, then the old Chase (taking the Chase name), and emerged as a banking leader, thanks to the scale and heft from its spateof deals.

But Chase's stock and its market capitalization far outpaced JP Morgan's, giving Chase the heft to be the effective acquirer for JP Morgan. Chase has a stock-market value of about $ 71 billion.

A Chase-JP Morgan combination would be better able to compete with the larger giants. Chase's Chase H&Q brokerage unit would feed off Morgan's modest but growing stock-underwriting business. The deal would create a powerhouse in traditional commercial-banking businesses: lending, bond underwriting, trading and derivatives management.