Bank One Corp., Chicago’s last hometown banking giant, will be acquired by New York’s J.P. Morgan Chase & Co., diminishing the city’s standing as a financial center and fanning worries about overconcentration in one of the nation’s essential businesses.
The $58 billion deal will create the second-largest U.S. bank, with $1.08 trillion in assets. But the combined company’s headquarters will be in New York, and many of its vital operations will be based outside Chicago.
The new company, which plans to eliminate 10,000 jobs, will be called J.P. Morgan Chase.
The Bank One name will continue to be used in the Midwest for the time being, although it eventually may disappear. The new bank said it would conduct research “to determine a long-term retail strategy.”
The all-stock deal, announced Wednesday after the stock market closed, allows Bank One Chief Executive Jamie Dimon to return triumphantly to New York and become head of the combined institution in 2006.
And that sets up a battle royal between the new giant and Citigroup Inc., the world’s largest bank and the place where Dimon was ousted as heir apparent after an earlier merger.
“This is the deal that people have been waiting for since Jamie Dimon came on board,” said Reilly Tierney of Fox-Pitt, Kelton, an investment bank in New York.
The 47-year-old Dimon, known for his dashing looks and quick temper, became CEO of Bank One in 2000, promising to put the struggling performer back on track.
He has mostly done that, banking experts say, and Bank One shareholders are reaping a healthy 14.5 percent premium based on Wednesday’s closing stock price of $45.22. J.P. Morgan will exchange 1.32 shares of stock for each Bank One share, valuing them at $51.77.
John McCoy, former Bank One CEO and a member of the bank’s founding family, applauded the deal.
“I’m now an investor,” he said, “so I’m a happy camper.”
But some Bank One customers weren’t so happy.
“A lot of people like myself are starting to miss the local banks,” said Jason Stiehl, a Gold Coast attorney as he used a Bank One ATM on Wednesday. “It increases my desire to switch banks.”
The deal, in the works since November, will save an estimated $2.2 billion over three years, the banks said. But it also could cost Chicago businesses the personal relationships and fast decision-making that comes with local ownership.
Then there’s the blow to civic pride. Without Bank One, Chicago’s largest financial institution is Northern Trust Co., a financial institution known more for managing the money of the wealthy than for corporate lending or branch banking. Two other large Chicago banks–Harris Bank and LaSalle Bank–are foreign-owned.
The deal may be painful for Chicago, but it makes sound economic sense, analysts say.
There is little geographic overlap between Bank One, a Midwest powerhouse with 1,800 branches in 14 states, and J.P. Morgan Chase, whose stronghold is the New York, New Jersey and Connecticut area. Bank One is the largest bank in Illinois and Indiana. J.P. Morgan Chase has the largest branch network in New York State.
They complement each other in terms of products, as well.
Bank One, the nation’s sixth-largest bank and the world’s largest issuer of Visa credit cards, is a consumer banking behemoth, while J.P Morgan’s expertise is in its investment banking division. The combined company will be the second-largest issuer of credit cards, trailing only Citigroup.
After the merger, consumer and small-business banking will be based in Chicago, the two companies said. The city also will be the headquarters for lending to medium-size companies.
For Bank One, the choice was to do a deal or be left behind.
“There were only three banks that were masters of their own fate, and Bank One wasn’t one of them,” said Bert Ely, a banking consultant in Virginia.
A 20-year trend of bank consolidation has created a small number of financial giants such as Citigroup and Bank of America that do everything from consumer banking to business lending to selling mutual funds. Consolidation cuts costs because there are economies from eliminating duplicate jobs, operations and branch locations.
“No matter what people say, size matters,” said Arnold Danielson of Danielson Associates, a bank advisory firm in Maryland.
At the opposite end of the spectrum, small bank-holding companies continue to hold on, catering to geographic areas that aren’t profitable enough for the giants or serving customers who desire a greater level of handholding.
The Bank One deal means that regional banks will have to step up if they want to stay in the game, said Ken Skopec, vice chairman of MB Financial Inc. in Chicago.
“This will heat up competition and put all of us on our toes to figure out how to serve customers better,” said Skopec, a veteran Chicago banker.
Bank One is the product of two previous takeovers. First Chicago Corp., which traced its roots back to 1863, was acquired by Detroit-based NBD in 1995, but the headquarters stayed here and the name became First Chicago NBD. Keeping the headquarters in Chicago was a condition of the deal, First Chicago executives said at the time.
Three years later, Bank One Corp., a rapidly expanding bank from Ohio, bought the combined entity and moved its Columbus headquarters to First Chicago’s downtown building at Dearborn and Madison Streets.
J.P. Morgan Chase, meanwhile, was formed in the 2000 merger of two old-line New York banks.
Chicago’s banks have been prime fodder for out-of-state acquirers because Illinois was late to embrace interstate banking, which kept the state’s banks out of the takeover game.
Bank One was identified as an acquisition target some time ago, and rumors about a imminent deal increased in recent months after Bank of America, the nation’s second-largest bank, agreed to purchase FleetBoston Financial Corp.
In late 2002, rumors of a Bank One-J.P. Morgan combination were swirling, but it was Bank One that was touted as the acquirer. William Harrison, Morgan’s CEO, said then that he had “zero interest” in being taken over by Bank One.
The new deal clears up a murky succession issue at J.P. Morgan Chase. Dimon will be president and chief operating officer of the newly merged bank, then succeed Harrison as CEO in two years. Dimon got his deal in writing this time.
Dimon, an ambitious protege of Travelers Corp. CEO Sanford Weill, was named president of Citigroup after the 1998 merger of Travelers and Citicorp. But he lasted just a month, losing out in a power struggle with a rival from Citicorp.
Since Dimon took over at Bank One, the company’s stock has risen sharply as he cleaned up problems in the credit card business and imposed cost-cutting discipline.
Although Bank One shareholders may be happy, not all are convinced that having a handful of giant banks is a good thing.
A public hearing Wednesday in Boston on the proposed $47 billion merger of Bank of America and FleetBoston drew more than 100 witnesses worried about everything from predatory lending to the closing of rural bank branches.
“Bigger is not better,” said Tanya Wolfram of the Community Reinvestment Association of North Carolina.
More bank mergers are likely, though not on the scale of Bank America and Fleet Boston or J.P Morgan Chase and Bank One.
With the recovering economy boosting banks’ bottom lines, “we expect to see bank mergers resume with a vengeance,” said James Moss, an analyst with Fitch Ratings.
The agreement was unanimously approved by the boards of directors of both companies, J.P. Morgan Chase and Bank One. However, it is subject to approval by the Federal Reserve and shareholders. The deal is expected to close in mid-2004.
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Largest U.S. banks
RANK/ INSTITUTION, HEADQUARTERS, ASSETS IN TRILLIONS
1. Citigroup Inc., New York, $1.21
2. J.P. Morgan Chase & Co./Bank One Corp., New York, ,$1.08
3. Bank of America/Fleet, Boston, Charlotte, N.C., $0.93
4. Wells Fargo Co.*, San Francisco, $0.39
5. Wachovia Corp., Charlotte, N.C., $0.39
*Ranking reflects Wells Fargo & Co.’s pending acquisition of Pacific Northwest Bancorp.
Sources: SNL Financial LC, Hoover’s and the banks
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BANK ONE TAKEOVER/TAKE-AWAY
Comparing Bank One, J.P. Morgan Chase
A merger of Bank One and J.P. Morgan Chase would bring together two industry giants.
BANKS COMBINED
CEO and Chairman: William Harrison
President, Chief Operating Officer: James Dimon
Headquarters: New York
NET ASSETS: $1.1 trillion (as of Sept. 30, 2003)
Bank One
James Dimon; CEO, Chairman
Headquarters: Chicago
Customers: 60 million
Employees: 73,685
FINANCIAL RESULTS, in 2002, in billions
Net revenues: $16.83
Net income: $3.30
Net assets (As of Sept. 30, 2003): $290.3
INCOME BY DIVISION, for 2002
Credit card services
51 million U.S. card holders
Net income: $1.66 billion
Retail banking
Serves 7 million households
Net income: $1.39 billion
Commercial banking
Includes loan syndications, commercial lending and investment managment
Net income: $617 million
Investment management
Portfolio management, financial planning, brokerage, mutual funds
Net income: $411 million
J.P. Morgan Chase
William Harrison; CEO, Chairman
Headquarters: New York
Customers: More than 30 million
Employees: 94,335
FINANCIAL RESULTS, in 2002, in billions
Net revenues: $29.61
Net income: $1.66
Net assets (As of Sept. 30, 2003) $758.8
INCOME BY DIVISION, for 2002
Chase Financial Services
Financial products for consumers and medium-sized businesses
Operating income: $2.49 billion
Investment banking
Offices in more than 50 countries
Operating income: $1.36 billion
Treasury, securities services
Top trustee for U.S. debt issues
Operating income: $677 million
Investment management, private banking
Operating income: $384 milion
J.P. Morgan Partners
Private equity investing.
Operating income: -$789 million
HOW THE NEW BANK WOULD COMPARE TO TOP COMPETITORS (U.S. RANK/INSTITUTION)
1. Citigroup Inc.
ASSETS (Trillions): $1.21
EMPLOYEES: 255,000
BRANCHES: 816
2. J.P. Morgan Chase & Co./Bank One Corp.
ASSETS (Trillions): $1.18
EMPLOYEES: 168,020
BRANCHES: 2,467
3. Bank of America*
ASSETS (Trillions): $0.93
EMPLOYEES: 183,944
BRANCHES: 5,900
RANK BY DEPOSITS
Compared with other banks
– See microfilm for complete graphic.
Sources: SNL Financial LC, Hoover’s, the banks Bank of America numbers include those for FleetBoston, pending a merger.
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