22 September, 2009

United States Bank Mergers & Acquisitions (JPMorgan Chase)

Photo: JPMorgan Chase uses the Chase brand for its retail banking business and J.P. Morgan for its wholesale and investment banking services.

With special thanks to Unnamalai Narayanan for granting me the permission to use this photo. You can visit her on-line gallery at http://www.unnamalai.com. As part of the photo use agreement, I made a donation to the Canadian Red Cross Society.

JPMorgan Chase & Co.

The earliest predecessor of JPMorgan Chase & Co. was founded in 1799. Since then, a long list of other banking firms, many of them well-known and revered names, have amalgamated to become today’s JPMorgan Chase group.

Bank One Corp.

The precursor banks of Bank One can be traced back to a number of small Ohio banks founded in the 19th century. The reference to some form of "One" first appeared in 1968, when the First Banc Group of Ohio was created by the merger of Columbus-based City National Bank & Trust Co. and Mansfield-based Farmers Saving & Trust Co. In 1979, First Banc Group changed its name to Banc One Corp. The bank expanded greatly in Texas when it bought the bankrupt MCorp from the FDIC in 1990. Throughout the rest of the 1990s, Banc One made acquisitions in Ohio, Wisconsin, Indiana, Utah, Colorado and Arizona.

Chase Manhattan Corp.

In 1799, the New York legislature granted a charter to powerful politician Aaron Burr (the future vice-president of the United States) to build a water supply system to improve water quality for New York City. The charter for The Manhattan Company contained provisions that allowed the company to deploy surplus capital in the business of banking, which Aaron Burr quickly used to launch the Bank of The Manhattan Company.

Mr. Burr and his Bank of The Manhattan Company soon became fierce rivals of another New York politician Alexander Hamilton and his Bank of New York, which had been founded in 1784. In the summer of 1804, following a heated debate, Alexander Hamilton and Aaron Burr agreed to a duel during which Mr. Hamilton was mortally shot by Mr. Burr. Even though he was charged for murder, Mr. Burr was never tried in a court of justice.

In 1877, publisher John Thompson founded the Chase National Bank. The bank was curiously named after his late friend Salmon P. Chase, who had been the Governor of Ohio as well as President Lincoln's Treasury Secretary. Chase National rode on New York's capital market boom in the early 20th century and became one of the world's largest banks by 1930.

In 1955, Chase National and the Bank of The Manhattan Co. merged to form the Chase Manhattan Bank.

Chemical Banking Corp.

Chemical Bank of New York opened for business in 1824. It was created by the New York Chemical Manufacturing Co., a maker of medical chemicals, paints and dyes. During the 1950s, a wave of bank consolidations saw Chemical Bank acquiring the National Safety Bank & Trust, Corn Exchange Bank and New York Trust Co. Through these acquisitions, Chemical Bank built a branch network in all five boroughs in New York City, making it a powerhouse in the metropolis.

First Chicago NBD Corp.

Like scores of other American banks, the First National Bank of Chicago was established in 1863 shortly after the passing of the National Bank Act. Sound management coupled with conservative lending practice led the bank to survive the 1933 banking crisis relatively unscathed. In 1969, a holding company called First Chicago Corp. was created. In the 1980s, First Chicago acquired Beneficial National Bank USA and became a major force in the credit card business.

The other half of First Chicago NBD, the National Bank of Detroit was founded in 1933 amidst a nationwide banking crisis. The stock market crash in October 1929 had badly shaken consumer confidence and led to a major recession. Banks that had over-extended themselves began to fail in 1930. As more and more banks failed, panic set in and runs on banks spread from one institution to another, and from one state to the next. To avoid a complete collapse of the banking system, President Franklin D. Roosevelt ordered all banks to shut their doors in March 1933 while the government worked on a resolution to restore confidence and order in the country. It was under such chaotic situations that the Reconstruction Finance Corp. and the General Motors Corp. jointly established the National Bank of Detroit in 1933.

For decades mostly a city bank, National Bank of Detroit began to open overseas offices in the 1960s. Expansion in the neighbouring states of Indiana, Illinois and Ohio began in the 1980s when inter-state banking became legal. In 1981, NBD's parent company was renamed NBD Bancorp, Inc.

J.P. Morgan & Co.

In 1861, John Pierpont Morgan established the J.P. Morgan & Co. as the New York sales and distribution agent for European securities underwritten by his father's firm, London-based J.S. (Junius Spencer) Morgan & Co. In 1871, J. Pierpont Morgan and his business partner Anthony Drexel formed a private merchant bank called Drexel, Morgan & Co. In 1895, Drexel, Morgan, J.S. Morgan and J.P. Morgan consolidated their U.S. operations into a new company called J.P. Morgan & Co.

Thanks to their trans-Atlantic reach, J.S. Morgan and J.P. Morgan became powerful international bankers right from the beginning. In 1892, J.P. Morgan helped create the General Electric Co. by combining the Edison General Electric and Thomson-Houston Electric companies. In 1901, the bank was pivotal in organizing more than 30 steel makers into the giant United States Steel Corp., then the largest company in the world by market value. Other than being a senior partner of his own bank, J. Pierpont Morgan was also a key figure in the First National Bank of New York (predecessor of today's Citigroup), the Bankers' Trust Co. and the Guaranty Trust Co. Following a financial crisis in 1907, J.P. Morgan also advised Washington on the shaping the Federal Reserve system.

In 1933, the passing of the Glass-Steagall Act required banks to separate investment banking -- seen as speculative and risky -- from the business of deposit-taking and lending. J.P. Morgan & Co. chose to retain its commercial banking activities and spun off its investment banking unit, which became investment bank Morgan Stanley & Co. In 1940, J.P. Morgan & Co. went public and listed its shares on the New York Stock Exchange. In 1959, the bank merged with the Guaranty Trust Co. of New York to form the Morgan Guaranty Trust Co. Back in 1927, Guaranty Trust Co. had pioneered the American Depositary Receipt (ADR) concept, allowing foreign companies to be listed in the U.S. The first ever ADR listing was British department store Selfridge's. Today, JPMorgan continues to be an active administrator of the ADR program, which has expanded to include a large number of European, Asian, Latin American and African stocks.

Manufacturers Hanover Corp.

Manufacturers' Trust was another U.S. bank established by a non-bank business. In 1817, the New York Manufacturing Co., a maker of cotton-processing equipment, launched a banking firm named Manufacturer's Trust Co. Later, the name was changed slightly to Manufacturers Trust Co. In 1961, it took over Hanover Bank and the new entity was renamed Manufacturers Hanover Trust Co. "Manny Hanny," as it was affectionately nicknamed by Wall Street, became a powerhouse in the corporate banking, corporate trust and asset custody business.

Recent transaction(s):

  • In 1991, amidst a deep recession and a slump in the commercial and residential real estate market, financially ailing Chemical Banking Corp. and Manufacturers Hanover Corp. merged in a USD $2.0-billion stock swap deal. The name Chemical Banking Corp. was retained. The combination of the No. 6 and No. 9 banks created the No. 2 bank in the U.S. at the time.
  • In 1995, First Chicago Corp. merged with NBD Bancorp in a USD $5.3-billion deal to form the First Chicago NBD Corp., the then largest bank in the Midwest.
  • In 1996, Chase Manhattan Corp. and Chemical Banking Corp. merged in a USD $10.3-billion deal and kept the Chase Manhattan name.
  • In 1998, Banc One Corp. merged with First Chicago NBD in a deal worth USD $29.4-billion, and altered the name slightly to Bank One Corp.
  • In 1999, Chase Manhattan Corp. bought San Francisco-based Hambrecht & Quist Group for USD $1.35-billion. Hambrecht & Quist was a boutique investment bank that catered to Silicon Valley’s high-tech start-ups.
  • In 2000, Chase Manhattan Corp. bought the last major independent British stockbroker and asset manager Robert Fleming Holdings Ltd. for GBP 4.83-billion (USD $7.74-billion). The purchase added USD $100-billion in assets under management to Chase Manhattan's USD $232-billion asset pool.
  • In 2000, Chase Manhattan Corp. acquired J.P. Morgan & Co. for USD $34.4-billion to form J.P. Morgan Chase & Co. (note the two full stops and a space before Morgan). The merger essentially combined four large and historic New York City banks into one (J.P. Morgan, Chase Manhattan, Chemical and Manufacturers Hanover).
  • In 2004, J.P. Morgan Chase & Co. took over Bank One Corp. for USD $58.7-billion. The name was changed slightly to JPMorgan Chase & Co. (note no full-stops and no space before Morgan).
  • In late 2004, JPMorgan Chase combined its British investment bank unit with Cazenove Group plc's corporate broking and investment finance units to form JPMorgan Cazenove. JPMorgan Chase and Cazenove Group would each own 50% of the new venture. Under the agreement, JPMorgan Chase would pay GBP 110-million (USD $203-million) to Cazenove Group. In addition, JPMorgan Chase and Cazenove Group agreed to each inject GBP 50-million into JPMorgan Cazenove. Cazenove Group would in turn return GBP 340-million to its shareholders. Cazenove Group was privately-owned and not publicly-listed.
  • In 2005, JPMorgan Chase bought Sears Canada's credit card unit for CAD $2.2-billion.
  • In 2006, JPMorgan Chase swapped its own corporate trust unit plus USD $150-million in cash for the Bank of New York's 338 retail branches in the New York area. The transaction further strengthened Chase's market share in New York City.
  • In 2007, in a highly unusual move, Bank of America, JPMorgan Chase & Co., private equity firms J.C. Flowers & Co. and Friedman Fleischer & Lowe LLC agreed to buy SLM Corp., better known as Sallie Mae, for USD $25.0-billion. Sallie Mae provided student loans in the U.S. Bank of America and JPMorgan Chase & Co. were each to take a 24.9% stake in Sallie Mae for a total of 49.8%; the two private equity firms would acquire the other 50.2% stake of the student loan underwriter. The purchase of a major financial service firm in a leveraged buyout (LBO) deal was very rare, as LBO transactions involve loading the acquired company with billions of debt, but the financial services sector is governed tightly by regulators with restrictive funding and reserve requirements. However, the acquiring consortium backed out from the deal later as the 2007 Banking Crisis deepened.
  • On 2008-03-16, financially-troubled Bear Stearns Companies Inc. agreed to be rescued by JPMorgan Chase for USD $236-million in stock (about USD $2 per share). Bear Stearns, America’s No. 5 investment bank, was established in 1923 in New York. It was floated on the NYSE in 1985 and grew quickly after that. In the early 2000s, it was the leader in securitizing and re-packaging residential mortgages, credit card and auto loans into collateralized debt obligations (CDOs) that were sold to investors. In addition, Bear Stearns was also active in lending to, and managing of hedge funds. As the over-heated U.S. housing bubble burst in 2007, many sub-prime (i.e. high risk) mortgage borrowers began to default on their loans and the CDO market collapsed. Rumours of Bear Stearns’ imminent bankruptcy started to surface on Monday 2008-03-10, and were vigorously denied by CEO Alan Schwartz. All that week, wary clients pulled USD $17-billion out of their Bear Stearns accounts, lenders demanded more collateral, and counterparties made margin calls. By Friday 2008-03-15, the company was in a severe liquidity crisis and sought help from the Federal Reserve, which hastily arranged for a sale to JPMorgan Chase for USD $2 per share. The low-ball offer highlighted how quickly the credit crisis had felled Bear Stearns. Just a little more than one year prior to its collapse, Bear Stearns’ shares traded at USD $171.51 a share in January 2007. As part of the agreement to take on Bear Stearns’ obligations, the Federal Reserve provided USD $30-billion of loan guarantees to JPMorgan Chase against Bear Stearns’ at-risk assets.
  • However, during the Easter weekend, the U.S. government was criticized for its role and the massive loan guarantees in the Bear Stearns bailout. Meanwhile, rumours surfaced that other banks would bid for Bear Stearns. On Easter Monday 2008-03-24, JPMorgan Chase agreed to raise its offer to about USD $10 per share in stock, as well as to subscribe to 95 million new Bear Stearns shares at the same price, raising the total offer for Bear Stearns to about USD $2.3-billion. The Fed also amended its agreement with JPMorgan whereby JP Morgan would be responsible for the first USD $1-billion in losses from Bear Stearns' bad assets, while the Fed would guarantee the remaining USD $29-billion.
  • On 2008-09-25, the U.S. Federal Deposit Insurance Corp. seized control of Seattle-based Washington Mutual Inc. (WaMu) and promptly sold its 2,300-branch network, USD $182-billion in customer deposits, and USD $176-billion in mortgage assets to JPMorgan Chase for USD $1.9-billion. JPMorgan Chase immediately wrote down USD $31-billion of the mortgages acquired. According to the FDIC, WaMu had suffered an exodus of USD $16.7-billion in deposits in the 10 days prior to its collapse, leaving the bank insolvent. With the purchase, JPMorgan Chase’s reach expanded to 5,400 branches across 23 states.
  • Following the lead of Britain’s GBP 37-billion (USD $64-billion) partial nationalization of The Royal Bank of Scotland Group, HBOS and Lloyds TSB Group, the U.S. government unveiled a similar plan on 2008-10-14 under which the U.S. Treasury would invest USD $250-billion in nine major U.S. banks. The nine banks that issued new preferred stock in exchange for USD $250-billion in funds were: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of New York Mellon, and State Street. All nine banks’ preferred stock would pay 5% dividends annually in the first five years, and 9% thereafter. The funds were disbursed under the name Troubled Asset Relief Program (TARP). JPMorgan Chase obtained USD $25-billion under TARP but quickly repaid the money in June 2009, as the bank was determined to be in good financial health.
  • In 2009, JPMorgan Chase bought the 50% of JPMorgan Cazenove that it did not yet own for GBP 1-billion (USD $1.67-billion).
  • In February 2010, JPMorgan Chase bought RBS Sempra's metals and energy assets outside of the U.S. for USD $1.74-billion (GBP 1.11-billion). RBS Sempra was a commodity-trading joint-venture owned by the Royal Bank of Scotland and Sempra Energy
  • In October 2014, JPMorgan Chase sold its physical commodities unit to Swiss-based trader Mercuria for about USD $800-million.  The sale amount was much smaller than the USD $3.5-billion originally announced back in March 2014, as the revised terms excluded significant stockpiles of oil and base metals.
  • In October 2015, JPMorgan Chase sold its Canadian MasterCard and private-label credit card portfolio to Canada's Bank of Nova Scotia. The portfolio had over 2-million active accounts and CAD $1.7-billion (USD $1.315-billion) of receivables. Terms of the transaction were not disclosed, but the price tags of such transactions are often close to the value of the receivables.
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