This case defines dual major merger in the global industry.. Those are JP Morgan and Chase Manhattan. Then JP Morgan Chase and Bank One merger which give rise to the establishment of JP.Morgan Chase and Company.
This case describes the logic for these mergers and places forth the details of each merger.
It defines the problems faced on the merger concerning JP Morgan & Chase Manhattan and debates on the future success of JP Morgan & Bank One merger..
Now the twentieth century merger and purchase were the most usable method of growth of a company. They present a company with a possibly higher market share and open it up to a encourage varied market. Merger which increases the acquisition firm's value is considered as the successful one. Most mergers have actually been done for the profit of both parties. Merger and purchase can be used to decrease the competition in many ways. The merger concerning JP Morgan Chase and Bank One become JP Morgan Chase with the opportunity to increase its growth in retail banking markets. The merger gave the firm that extra growth and competitive power that it was looking for to compete with Citigroup and other rivals. With the help of more effective and advance technologies now a days mergers and acquisition are become more frequent than the past. The topic of mergers and acquisitions is extremely complicated because of many types.
Contents
Introduction
First week of January 2006, Jamie Demon became the new CEO of the US-based banking major JP Morgan Chase & Company .Demon was earlier the CEO of Chicago-based retail banking and credit card major - Bank One Corporation (Bank One).
He was working in the turnaround of Bank One in 2001 and he also negotiated the acquisition of Bank One by JP Morgan Chase & Company for us$ 58 billion in January 2004.
This was the third largest acquisition in the US history. After the merger, Demon was hired President and Chief Operating Officer of JP Morgan Chase below William B. Harrison, who was then Chairman and CEO.
Many industry analysts seems that this merger will help the company to obtain all his goals easily across the US. However, some analysts thought otherwise, JP Morgan Chase had only recently come into existence as the product of a merger between JP Morgan & Company Incorporated and Chase Manhattan Corporation on September 13, 2000, and the integration of the two had not yet been completed.
Acquiring a new retail bank at this point would complicate the situation and increase the risk for the newly merged entity, in their opinion.
On this, E. Reilly Tierney, Analyst at Fox Kenton said, "The last thing people want is for Morgan to add risk.
Literature review
This was the biggest merger in banking industry .When two same companies became merge for the improvement of their global growth in the market or industry .A merger refers to a combined of two or more companies into a single company. As JP Morgan & bank one combination may be either through absorption or consolidation. In absorption, JP Morgan absorbs bank one, whereas under consolidation, combine to form a new company JP Morgan chase & co. In general parlance, mergers are also referred to as amalgamations. There are three types of mergers, but in this case they use horizontal merger. Bank one & JP Morgan was in the same line of business. So we can say this is a horizontal merger.
Issues
»Company's objective was to become the most trusted & respected financial service.
»Company was concerned for their extra growth.
»Company wants to become a global leader.
»JP Morgan buy bank one to approach new markets & increase revenues.
» Company wants to be a worldwide company.
The Merger
Temporarily, 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.
Merger with bank one
JP Morgan Chase & Bank One Corp
The $58 billion 2005 merger of JP Morgan Chase and Bank One marked the triumphant return to Wall Street of Jamie Demon. "Little more than five years after being cast into exile", USA Today reports, Demon "returned on a chariot" to become CEO of the new combined entity, said to be the nation's second-biggest bank with total assets of $1 trillion and 2,300 branches in 17 states. Chiefly, the deal sought to "glue J.P. Morgan's volatile investment banking and trading concerts with the more predictable consumer and credit card businesses of Bank One''
So I investigate their "new and improved" bill pay. It appears they're going to "process" electronic payments early to "help me" by making sure they're paid on time. Okay -- they're electronic. They've been instant since at least 1995 when I was using Check Free. Oh, for those place they send checks to, they're going to take out my funds five days early. This is a check I'm talking about. Funds aren't supposed to disappear until the check gets there. WTF happens if the check gets lost in the mail? Bank already took it out, payee has nothing to present, and now my money is in a black whole somewhere.
Okay, how about double-entry accounting? Money leaves my account on such and such a date, then is applied to my other account on such and such a day -- where does sitting in a black-hole limbo fit in?
Quite frankly, I'm concerned that Bank One is making a fragging' mistake. So the GQ (there is one) is, what the heck can I try to do about this? Unless all you have is $5 in a passbook account, it's not easy to leave a bank. Is there any place worth complaining to? Federal? State of Mich.? State of wherever there He'd? Hell, if nothing I'd like to bust 'me on false advertising; "improved" banking experience my ass.
If you want to discuss cannibalizing black people, probably the best place for that is the BBQ Pit. -
J.P.Morgan Chase (www.jpmorgan.com) and Bank One (www.bankone.com) have agreed to merge in a move that establishes the second largest banking franchise in the United States. The combined company will have assets of $1.1 trillion, 2,300 branches and top positions in retail banking and lending, credit cards, investment banking, asset management, treasury and securities services. The companies anticipate cost savings of $2.2 billion to be achieved over a three-year period.
The transaction creates an enterprise with a combined market capitalization of approximately $130 billion.
The merged company will be known as J.P. Morgan Chase & Co. with corporate headquarters located in New York. The retail financial services business, which includes the consumer banking, small business banking, and consumer lending activities (with the exception of credit card), will be headquartered in Chicago. Chicago will also serve as the headquarters for the middle market business.
Both JPMorgan Chase and Bank One offer extensive payables outsourcing, and image archive services. It was not immediately clear what affect, if any, the merger would have on those services
Bank One changing name to J.P. Morgan Chase in 2005
Publication: New Orleans City Business
Date: Monday, June 14 2004
Bank One announced it will change its name to J.P. Morgan Chase & Co. in 2005 following the merger of the two banks July 1.
Chief Executive Officer Jamie Demon said Bank One's consumer and commercial banking businesses, which includes retail banking; credit card, home and auto finance; and middle market and mid-corporate banking, will change names. The bank already had announced investment banking and asset and wealth management would operate under the Chase name.
Demon said the 125-year-old Chase brand is stronger across the different constituencies and geographies, and across all lines of our consumer and commercial banking business.
Approximately 1,800 retail branches nationwide will be affected. New Orleans branches will continue to use the Bank One name until early 2005, said John Kallenborn, president of Bank One's New Orleans region.
Bank One customers will notice no change in service because J.P. Morgan will use Bank One's banking system, Kallenborn said.
J.P. Morgan is acquiring Bank One for $58 billion in stock. The combined company will be the nation's second-largest bank with assets of $1.1 trillion and 2,300 branches in 17 state
Defaults before merger:
Company was going under loss before merger
Loans were not granted from bank as company was in loss.
Shared were down in shares market
No one was willing to invest in the company
Company was not satisfying their customer
Change after merger:
Problems did begin to crop up soon after the merger. The US economy was experiencing a downturn after the dotcom bubble burst in March 2000.
During the mid-1990s, telecom companies in the US had borrowed huge amounts to finance their expansion plans expecting rapid growth in the industry. Companies overbuilt telecom infrastructure and had huge capacities which resulted in oversupply leading to a decline in revenues for many companies.
By early 2001, the telecommunications bubble had burst. JP Morgan Chase had financed several telecom companies which went bankrupt at this time. One such firm was Global Crossing, which JP Morgan had financed to the extent of US$ 100 million while Chase had an exposure of US$ 20 million. The company filed for bankruptcy on January 28, 2002...
CONCULSION
In the twenties century mergers and acquisitions are the most recurrently used methods of growth for companies. They present a company with a hypothetically larger market share and open it up to a more differentiated market. A merger is considered to be successful, uncertainty it growths the acquiring firm's value. Clearly, judging from the various statistics charts establish in the appendix, there is a considerable amount of companies in the United States which believe that a merger will increase their company's value, and after reading this thesis, one can see that this is not always so. The evidence is diverse as to whether mergers improve company's performance. As times, companies make predictions for growth, increased efficiency, and greater profits. There are certain imperfections in the capital markets which contribute to imperfect information and at times even merger failures. Most mergers have actually been known to benefit both competition and consumers by allowing firms to operate more efficiently. However, it has to be noted that some mergers and acquisitions have the capacity to decrease competition. Usually, a merger can be construed as being anti competitive if it makes the market very saturated after the merger, as opposed to before the merger's completion, and if the merger in addition makes it impossible or
Highly difficult for new firms to enter the market and present a challenge to the existing corporations.
Going deeper into the subject of mergers, it became clear that there are three main types of mergers: horizontal mergers, vertical mergers, and potential competition or conglomerate mergers. As was also presented, the United Nations' "World Investment Report 2000" suggests that the recent increase in cross-border mergers and acquisitions is mainly due to an increase in the globalization of markets. Supporting this fact is the statistic that more than 24,000 [mergers and acquisitions] took place during the last 20 years." The ease of communication has undoubtedly been a major factor in increasing mergers and acquisitions, since most mergers take place in more developed countries. To make the process of mergers and acquisitions fair for both the consumers and firms in the market several controls have been put into place to regulate M&As. The European Commission, which investigates the grounds for approving or rejecting a merger between two European companies, the FDIC and the Monopolies and Mergers Commission are examples of these controls. Growth of interest in the concept of a so called contestable market effectively complements the idea of the free market approach to mergers. By concentrating on
42 removing entry barriers to a market, monopolies and mergers can only remain strong by producing high quality products efficiently. To reiterate on the point, the main economic argument for rejecting a merger is that mergers and acquisitions contribute to the risk of monopolies, because in the case of monopolies, consumers become exploited and resources become misallocated if these mergers create major entry barriers restricting competition, which can potentially lead to market failure and a decline in economic welfare. As a case in point, JP Morgan Chase is a perfect example of how a smart strategic move can make significant improvements to a company's performance. After the acquisition, as we have already established the "merger" between Bank One and JP Morgan Chase is, the latter company's market share, revenues, and net income all rose to impressive highs, marking the initial success of the acquisition.
