Originally created 01/16/04

Banking giants merge, with eye to growing even bigger



CHICAGO -- The wave of consolidation in the U.S. financial services industry has given birth to another mega-bank - and the new team of J.P. Morgan Chase & Co. and Bank One Corp. already is talking about getting bigger.

The nation's third- and sixth-largest banks hooked up in a long-rumored merger after markets closed Wednesday, a deal that enables them to leapfrog last fall's Bank of America-FleetBoston pairing to become No. 2 behind Citigroup if both transactions are approved.

For $58 billion, J.P. Morgan Chase acquires Bank One's Midwest banking strength, $290 billion in assets and 1,800 branches in 14 states while keeping its name and New York headquarters status intact.

It also gets a successor to 60-year-old chief executive William B. Harrison Jr., who agreed to give up that post in 2006 to Jamie Dimon, a Wall Street darling since before his four-year stint as Bank One's CEO. Dimon will be president and chief operating officer in the interim.

The banking acquisitions may not stop there, however. Both Harrison and Dimon acknowledged they will have an eye on possible future deals once this one is completed, which they expect by mid-2004.

"We're well-positioned if the right opportunity is there," Harrison said in a Wednesday evening conference call with reporters. "If the right situation comes along, we'll look at it."

This merger would create a company with assets of $1.1 trillion - a powerhouse in corporate and retail banking with 2,300 branches that trails only Citigroup's $1.19 trillion.

"It's a blockbuster of a transaction," said analyst Denis Laplante, who covers Bank One for Keefe, Bruyette & Woods Inc. "J.P. Morgan gets diversification out of capital markets into retail banking, and Dimon gets to run the combined company with the brokerage capability he was coveting."

The deal will come at a steep price for the as many as 10,000 employees who will lose their jobs when the companies' operations are integrated. Harrison, who will retain the chairman's title after he gives way to Dimon, said the companies were still identifying overlapping jobs to be cut.

That number of job cuts would amount to 7 percent of the combined work force of 145,000. Harrison said the total "hopefully will not be near 10,000," noting the possibility of even "adding a lot of new jobs" within the next couple of years.

The agreement was unanimously approved by the boards of directors of both companies, J.P. Morgan Chase and Bank One said in their joint announcement.

"This landmark transaction will create one of the world's great financial services companies - a powerful enterprise well-positioned to generate significant value for our shareholders, customers and communities," Harrison said.

Dimon said the merger "makes tremendous sense strategically, operationally and financially." Asked about the possibility of future retail bank acquisitions, Harrison said they would be considered but, as a strong force in wholesale and retail banking, "we don't have to do another merger to be successful."

Bank One shares initially soared 10 percent in after-hours trading following reports of the transaction, then fell back.

Bank One shareholders would receive 1.32 J.P. Morgan shares for each share they own. Based on J.P. Morgan's closing price of $39.22 on Wednesday, the transaction would have a value of about $51.77 for each of the 1.12 billion outstanding shares of Bank One stock - a total of $58 billion - and create an enterprise with a combined market capitalization of about $130 billion. The premium paid for Bank One amounts to about 14 percent based on closing market prices.

The retail financial services business will be based in Chicago, as will its middle market business. The retail financial services unit includes the consumer banking, small business banking and consumer lending activities except for the credit-card business.

Nonetheless, losing a Fortune 100 company to New York is a blow to Chicago, which has lost the top billing for numerous large corporations through mergers or closure in recent years, although it did add Boeing Co. in 2001. It also takes away the company that was its sole candidate to be a national bank. Bank One had been based in Columbus, Ohio, before moving its headquarters to Chicago in 1998.

Dimon said the merged bank is making a "major commitment" to Chicago by keeping much of its business there. He also said that contrary to widespread industry talk, he hadn't been "dying to get back to New York" and may even commute from his Chicago home if his family wants to stay here.

Reilly Tierney, an analyst for Fox-Pitt Kelton Inc. in New York, praised the deal for both not being overly expensive and because "it gives Jamie Dimon a platform to build a serious global investment bank" and also answers the succession issues at J.P. Morgan.

He said the combination will be especially potent in auto finance and credit cards. "They're going to be as big as Citi in the United States," he said.

Associated Press Eileen Alt Powell in New York contributed to this report.

Top 10 banks

A list of the 10 largest U.S. banks by assets, according to data compiled by the American Banker, a daily trade publication. Assets are as of June 30.

The figures assume shareholders and regulators give approval to the Bank of America-Fleet Boston and the J.P. Morgan Chase-Bank One mergers.

-Citigroup Inc., $1.19 trillion

-J.P. Morgan-Bank One, $1.1 trillion

-Bank of America-FleetBoston, $966.4 billion

-Wells Fargo, $369.6 billion

-Wachovia Corp., $364.3 billion

-Washington Mutual, $241.9 billion

-U.S. Bancorp, $194.9 billion

-National City Corp., $123.4 billion

-SunTrust Banks, $120.9 billion

-Bank of New York, $99.6 billion

On the Net:

www.jpmorganchase.com

www.bankone.com