2004-01-20 10:31:10
Bank One to combine with JP Morgan Chase

NEW YORK: JP Morgan Chase & Co last Wednesday agreed to buy Chicago-based Bank One Corp for about US$58 billion in stock, in one of the largest financial mergers in US history.

The acquisition would extend the geographic reach of JP Morgan, which has a major presence in the US northeast, throughout the midwest and southwest, especially in consumer banking.

It would also reduce JP Morgan's dependence on investment banking and trading, analysts said.

"Lovely deal," said Michael Stead, who runs the US$550 million Wells Fargo SIFE Specialized Financial Services fund, and owns shares of both banks.

"They would command a wider geography, and they could cross-sell products more easily. A combination would be better than the sum of the parts."

JP Morgan Chase, whose roots date to 1799, was formed three years ago from the merger of Chase Manhattan and JP Morgan. It is the second-largest US bank.

Bank One, with more than 1,800 banking offices, is the sixth-largest. As many as 10,000 jobs might be cut, the banks said.

William Harrison, JP Morgan's chairman and chief executive, will keep those jobs in the combined company, which will be named JP Morgan Chase. It will be based in New York.

Its US$1.1 trillion in assets will be second to Citigroup Inc.

"This combination is transformational, because it makes us a major consumer player in the United States," Harrison, 60, said in a conference call.

"We don't have to do another merger to be successful."

Jamie Dimon, 47, Bank One's chairman and CEO since March 2000, will become chief operating officer and rise to CEO in 2006.

Harrison will remain chairman. Dimon moved to assure Chicagoans that after the merger, "we want to make sure that Chicago knows we will be there."

The merger will be the third-largest in US financial services.

In 1998, Travelers Group bought Citicorp for US$70.2 billion to create Citigroup, and NationsBank bought BankAmerica for US$59.2 billion to create Bank of America Corp.

Job cuts

Bank One shareholders will receive 1.32 JP Morgan shares for each Bank One share, valuing Bank One at US$51.77 per share, a 14.5 per cent premium over its closing price last Wednesday.

The merger is expected to close in the middle of the year. It is subject to regulatory and shareholder approval.

"We will have about 10,000 job eliminations," Harrison said.

That is about 7 per cent of the banks' US work force.

He said the banks have not decided where cuts will occur, but "the number will hopefully not be near 10,000, because we'll have attrition."

JP Morgan said it expects US$3 billion of pretax merger costs, and US$2.2 billion of pretax savings over three years. It said it expects the merger to boost profit in 2005.

JP Morgan will combine its strong credit card presence with that of Bank One, the No 3 card issuer after Citigroup and MBNA Corp, and the largest issuer of Visa cards.

"There is a real logic to it," said Bert Ely, a banking consultant at Ely & Co in Alexandria, Virginia.

Dimon said Bank One used the code names "Clark" for itself and "Park" for JP Morgan while negotiating the merger, after the streets where the banks' headquarters are located.

He said JP Morgan used "Jupiter" for itself and "Apollo" for Bank One.

Dimon in rough

The merger re-establishes Dimon, once a top executive at Citigroup, as one of Wall Street's most formidable executives.

Dimon was ousted from Citigroup after a 1998 power struggle.

Sanford "Sandy" Weill, his mentor at Citigroup, remained chairman, though he handed over the CEO reins to another long-time confidant, Charles Prince, last year.

At Bank One, Dimon has proven to be much like Weill in his bid to cut costs.

He won praise after replacing two executives and improving practices after regulators implicated the bank's asset management unit in the mutual fund trading scandal.

The merger won't likely be the last big banking combination, analysts said.

"It might mean people have to step up to the plate and do more deals," Stead said.

"There are now just a handful left for consolidation."

The pending purchase by Bank of America, the No 3 US bank, of No 7 FleetBoston Financial Corp would vault that combination past the current JP Morgan.

In October, Bank of America agreed to pay a 41.5-per-cent premium for Fleet, and was criticized for overpaying.

Antitrust experts said the Bank One purchase will probably win regulatory approval.

"The bulk of each other's operations are not in each other's footprint," said Michael Mierzewski, a partner at Arnold & Porter in Washington.

The banks estimate they will control 7 per cent to 8 per cent of US deposits, below the 10 per cent maximum.

JP Morgan Securities Inc and Simpson Thacher & Bartlett LLP advised JP Morgan. Lazard Freres & Co and Wachtell, Lipton, Rosen & Katz advised Bank One.

Agencies via Xinhua

(Business Weekly 01/20/2004 page6)

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