J.P. Morgan Chase & Co.

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J.P. Morgan Chase & Co.

270 Park Avenue
New York, New York 10017-2070
U.S.A.
Telephone: (212) 270-6000
Fax: (212) 270-2613
Web site: http://www.jpmorganchase.com

Public Company
Incorporated: 1968 as Chemical New York Corporation
Employees: 90,000
Total Assets: $705 billion (2001 est.)
Stock Exchanges: New York London
Ticker Symbol: JPM
NAIC: 522110 Commercial Banking; 522190 Other Depository Credit Intermediation; 522210 Credit Card Issuing; 522291 Consumer Lending; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523210 Securities and Commodity Exchanges; 523920 Portfolio Management; 523991 Trust, Fiduciary, and Custody Activities; 551111 Offices of Bank Holding Companies

J.P. Morgan Chase & Co. is the name adopted by the Chase Manhattan Corporation following its year-end 2000 acquisition of J.P. Morgan & Co. Incorporated. J.P. Morgan Chase is one of the largest financial institutions in the world encompassing global commercial banking services, including investment banking, wealth management, institutional asset management, and private equity, under the J.P. Morgan name; and a retail banking business known as Chase comprising regional consumer banking in the New York tri-state area and Texas, credit cards, mortgage banking, consumer lending, insurance, and middle-market banking. The creation of J.P. Morgan Chase brought together two of the most venerable names in banking, not to mention two famous historical figures associated with the two firms—J. Pierpont Morgan and David Rockefeller; it also was the culmination of a historical process full of mergers, most notably those on the Chase side that occurred in the 1990s. In 1991 two banking giants, Chemical Banking Corporation and Manufacturers Hanover Corporation, merged to form the number five bank in the United States under the Chemical Banking name. Then in 1996 Chemical Banking acquired Chase Manhattan, adopting the more prestigious Chase name and forming what was then the largest bank holding company in the country. The old Chase Manhattan itself was the product of a 1955 merger between the Bank of Manhattan Company, which was formed in 1799, and Chase National Bank, which traced its origins back to 1877.

Bank of Manhattan Company: 1799-1955

Chase Manhattan’s earliest predecessor, the Manhattan Company, was formed in 1799, ostensibly to supply New York with clean water to fight a yellow fever epidemic. Its real purpose, however, was to establish a bank. Organized by Aaron Burr to challenge the supremacy of the Bank of New York and the Bank of the United States, the company had a charter in which Burr had surreptitiously inserted a clause authorizing it to engage in other businesses with any leftover capital. To no one’s surprise, the company soon discovered that the water-supply operation would not require all of its resources, so the Bank of Manhattan Company was opened in 1799 at 40 Wall Street. The bank’s first president was Daniel Ludlow.

In 1808, the year Daniel Ludlow resigned, the company was allowed to sell the water operation to the City of New York and devote its energy to banking. From that time onward, the Bank of Manhattan flourished. The bank introduced several innovative banking practices, among them, the method by which it had gained a charter. Its example spawned corruption among other groups who sought incorporation; the construction of canals during the 1820s and 1830s or the building of railroads in the 1850s and 1860s often became the pretext for procuring a bank charter that might not otherwise have been granted.

Since the bank had virtually no restrictions in its charter, it was able to loan money to a wide variety of patrons, including tradespeople, land speculators, and manufacturers as well as the New York state government. This open banking policy provided a great impetus for westward expansion in the United States during the mid- and late 19th century. By the turn of the century the Bank of Manhattan had established itself as one of the largest holders of individual depositor accounts. Its policy of providing personal banking services worked so well that, at the time of its merger with Chase in 1955, the Bank of Manhattan operated 67 branches throughout New York City and was widely regarded as one of the most successful and prestigious regional banks in America.

Chase National Bank: 1877-1955

The other part of Chase Manhattan, the Chase National Bank, was established in New York in 1877 and named after Salmon P. Chase, Secretary of the Treasury under Abraham Lincoln. It was not until 1911, however, when Albert Henry Wiggin took over the leadership of the bank, that Chase developed into a power on Wall Street. In 1905, at the age of 36, Wiggin became the youngest vice-president in the company’s history. By 1911 he was president of the bank and by 1917 the chairman of its board of directors.

Chase was a relatively small bank when Wiggin took over, but he soon began to transform it into one of the largest in the world. He did this by expanding the bank’s list of corporate accounts through the offer of more banking services, especially trust services. Wiggin helped to found Mercantile Trust in 1917 and in the same year organized Chase Securities Corporation to distribute and underwrite stocks and bonds. This affiliate soon became a major force in the equities markets. In addition, Wiggin established strong ties to big business by recruiting the bank’s directors from the most influential companies in the United States.

Wiggin’s greatest contribution to the bank was his arrangement of a series of mergers during the 1920s and early 1930s in which Chase absorbed seven major banks in New York City. The largest of those, the Equitable Trust Company, had more than $1 billion in resources when it was acquired in 1930. The eighth largest bank in the United States at the time, it was owned by John D. Rockefeller and led by Rockefeller’s brother-in-law Winthrop Aldrich. Not long after the merger, Wiggin assumed the chairmanship of what was then the largest bank in the world.

In 1932, however, the leadership at Chase changed dramatically. Wiggin had used not only his own funds, but also those of the bank to engage in stock speculation, and that year was forced to resign. In the following years, Wiggin and several of his close associates were disgraced by a Congressional investigation that uncovered, among other transgressions, the use of affiliated companies to circumvent the laws restricting stock market transactions. Moreover, it was learned that during the stock market crash of 1929, Wiggin had made $4 million selling Chase stock short—and using bank funds to do so.

Winthrop Aldrich directed the bank’s operations from the mid-1930s to the end of World War II, a period when Chase continued to expand and develop, becoming the first bank to open branches in both Germany and Japan after World War II. Aldrich knew, however, that Chase was hampered in its domestic development by the fact that all of its consumer branches were located in Manhattan. The bank had always concentrated on corporate and foreign business and ignored innovations such as branch banking, leaving it in a weak position to capitalize on the prosperity of middle-income Americans during the postwar boom. In 1955, Aldrich arranged a merger between Chase and the Bank of Manhattan, at the time the nation’s 15th largest bank, but more importantly one with an extensive branch network throughout New York City.

Chase Manhattan, 1955-81: The David Rockefeller Era

From the time of the merger between Chase and the Bank of Manhattan, there was a new driving force behind the bank’s activities: David Rockefeller. Rockefeller had joined Chase as the assistant manager of its foreign department after the war, becoming vice-president by 1949. In the early 1950s, he was head of the bank’s metropolitan department; it was actually Rockefeller who advised Aldrich on the benefits of the merger with the Bank of Manhattan. With the merger complete, he was named executive vice-president and given the task of developing the largest bank in New York City. At the same time he was also appointed vice-chairman of the executive committee. In 1969, he became chairman of the board of directors, the same year the Chase Manhattan Corporation was incorporated and the Chase Manhattan Bank N.A. became its wholly owned subsidiary.

As the head of Chase Manhattan, David Rockefeller soon became a major international power broker. Never really interested in the day-to-day operations of the bank, he began to travel extensively, meeting with political and business leaders around the world. This high international profile led Rockefeller to use the bank in the service of what he regarded as desirable American foreign policy; by becoming one of the pillars of the U.S. foreign policy establishment, his influence on the Council of Foreign Relations and Trilateral Commission was very strong.

This close association between Chase and the prevailing U.S. political establishment inevitably drew the bank into controversy. In 1965, Chase’s decision to purchase a major share in the second largest bank in South Africa provoked an intense campaign by civil rights groups to persuade institutions and individuals to withdraw their money from a firm that clearly supported the apartheid regime. In 1966, widespread protests were directed against the bank following Rockefeller’s decision to open a Chase branch in Saigon. A strong supporter of U.S. involvement in the Vietnam War, Rockefeller traveled to the capital of South Vietnam to open the building personally; a sandstone fortress, it was designed to withstand mortar attacks and mine explosions.

Company Perspectives:

Chase’s Vision: We provide financial services that contribute to the success of individuals, businesses, communities and countries around the world. By creating solutions for our customers, opportunities for our employees and superior returns for our shareholders, we help each to achieve their goals.

David Rockefeller and Chase’s foreign controversies continued into the 1970s. During this time, the shah of Iran had been the bank’s best customer in the Middle East. Iran’s $2.5 billion in deposits from oil profits amounted to approximately eight percent of Chase’s total deposits in 1975. When the shah fell from power in 1979, it was Rockefeller who, along with Henry Kissinger—at that time the chairman of the firm’s international advisory committee—persuaded the Carter administration to allow the shah into the United States. When Iran tried to retaliate by withdrawing its funds from Chase, Rockefeller succeeded in convincing the government to freeze all Iranian assets in U.S. banks, a move that led to the seizure of hostages at the American Embassy in Teheran.

The 1970s were a difficult time for the bank. Chase lost significant domestic business as regional banks lessened their dependence on Chase Manhattan for their own growth and expansion; their burgeoning resources made it less important that they go to the “banker’s banker” for loans. In addition, Chase lost millions of dollars in bad loans to Latin American countries, which resulted in its being placed on the Federal Reserve’s list of “problem banks”—ones that needed constant supervision. Although the company’s foreign income increased from one-half to two-thirds of its total income during this time—to nearly $4 billion—the bank had a hard time competing with Citibank’s aggressive expansion. Nevertheless, Chase remained the country’s third largest bank, with 226 branches in New York City and 105 branches and 34 subsidiaries around the globe.

1980s: Battered by Bad Loans and Third World Debt Crisis

The 1980s ushered in a period of significant acquisitions for Chase. In 1984 the bank purchased Nederlandse Credietbank N.V., a Dutch bank headquartered in Amsterdam. The same year it purchased the Lincoln First Bank in Rochester, New York. In 1985, the bank bought six Ohio savings and loan institutions. In 1986, Chase acquired Continental Bancor.

In 1981, David Rockefeller retired from his position at Chase. Willard C. Butcher, his hand-picked replacement, had been president and CEO of Chase, and succeeded him as chairman of the board. Butcher took up where his predecessor left off; Chase maintained a very high profile in international finance, continuing to view itself as a worldwide power broker.

Key Dates:

1799:: The Bank of Manhattan Company is founded.
1824:: Chemical Bank is established.
1838:: George Peabody forms a merchant bank in London.
1851:: Hanover Bank begins business.
1853:: Manufacturers National Bank is founded.
1854:: Junius S. Morgan becomes a partner of Peabody in the London merchant bank and soon takes it over.
1861:: Junius’s son, J.P. Morgan, founds a New York sales and distribution office called J.P. Morgan & Co.
1864:: J.S. Morgan renames the London merchant bank J.S. Morgan & Co.
1877:: Chase National Bank is formed.
1895:: J.P. Morgan consolidates his father’s businesses under J.P. Morgan & Co.
1914:: Manufacturers mergers with Citizens Trust Company and subsequently changes its name to Manufacturers Trust Company.
1929:: Hanover merges with Central Trust Company to form the Central Hanover Bank and Trust Company.
1930:: Chase acquires Equitable Trust Company, owned by John D. Rockefeller.
1933:: The Glass-Steagall Act separates commercial and investment banking.
1935:: J.P. Morgan spins off its investment banking arm as Morgan Stanley.
1954:: Chemical merges with Corn Exchange Bank and Trust Company.
1955:: Bank of Manhattan and Chase National merge to form Chase Manhattan Bank.
1959:: J.P. Morgan merges with Guaranty Trust Company to form Morgan Guaranty Trust Company of New York.
1961:: Manufacturers and Hanover merge to form Manufacturers Hanover Trust Company.
1968:: Chemical New York Corporation is established as a bank holding company for Chemical Bank.
1969:: Chase Manhattan Corporation is formed as a bank holding company, with Chase Manhattan Bank, N.A. becoming its main subsidiary; Manufacturers Hanover Corporation is created as a bank holding company, with Manufacturers Hanover Trust as its subsidiary; J.P. Morgan & Co. Incorporated is formed as a bank holding company, with Morgan Guaranty Trust as its principal subsidiary.
1987:: Chemical acquires Texas Commerce Bankshares.
1989:: The Federal Reserve grants J.P. Morgan permission to underwrite corporate debt securities, marking the firm’s return to the U.S. investment banking sector.
1991:: Chemical merges with Manufacturers Hanover, creating Chemical Banking Corporation.
1996:: Chemical Banking acquires Chase Manhattan and adopts the Chase name.
1997:: J.P. Morgan purchases 45 percent stake in American Century Investments.
1999:: Chase acquires Hambrecht & Quist Group Inc.
2000:: Chase acquires Robert Fleming Holdings Ltd.; Chase merges with J.P. Morgan to form J.P. Morgan Chase & Co.

But the most important problem for Chase Manhattan in the 1980s was a series of bad loans that had no equal in quantity or magnitude in the bank’s history. It started when Drysdale Government Securities defaulted early in 1982 on $160 million in interest payments to brokerage firms. Chase had acted as an intermediary for these deals, and thus was forced to pay $117 million of the interest Drysdale owed. Only a few months later, Penn Square Bank, N.A. collapsed after $2.5 billion in unsecured loans that it had made to oil and natural gas interests in Oklahoma went sour. Chase purchased some of those loans, but moved quickly to write off $161 million of them to prevent further financial damage. Chase had also been one of the most heavily exposed banks lending money to Third World countries. On February 20, 1987 Brazil announced that it would suspend payment on its foreign debt and threw the money-center banks into a panic. In May, Chase added $1.6 billion to its loan loss reserves. As a result, it posted a loss of $894.5 million for 1987—the worst year for American banking since the Great Depression.

Battered by the Third World debt crisis and faced with strong competition from insurgent regional banks, Chase Manhattan faltered in the late 1980s. Between 1986 and 1988, it reduced its workforce by ten percent, or about 6,000 employees. In 1988 the New York Times speculated that the venerable banking giant might be a takeover candidate because of its depressed stock price and prestigious name. Then, in 1989 and 1990 Chase suffered huge losses from commercial real estate loans, sinking the bank’s finances to new lows. Reflecting the seriousness of the situation, the bank’s board asked Butcher to retire a year early so that a new team could deal with the crisis.

Butcher’s heir apparent during the turbulent late 1980s was his president and chief operating officer, Thomas G. Labrecque. Following a stint in the Navy, Labrecque had joined Chase in 1964 as a trainee, moving up the ranks until 1970 when he started working directly for Rockefeller on various troubleshooting assignments. He made his mark at Chase in 1975 with his work on the Municipal Assistance Corp., which helped bail New York City out of a financial crisis. Labrecque was also credited with convincing Chase’s board in 1978 that the bank should expand its retail business—which by the 1990s would generate nearly half of the bank’s revenues. In 1981 he was named president.

Restructuring in the Early 1990s

Industry observers noted that Labrecque’s more well-known predecessors had emphasized Chase’s worldwide position at the expense of a domestic operation which, with its various problems and scandals of the 1980s, seemed out of control. When Labrecque—virtually unknown outside of banking circles—took over as CEO in late 1990, his immediate task was to implement a restructuring plan intended to rein in control of Chase’s operations and turn the bank’s fortunes around. Like other banks struggling through those industry-wide difficult years, Chase cut costs, trimmed staff (another 6,000 by the end of 1991), and reduced operations. Labrecque also scaled back the bank’s international presence by beginning to jettison its foreign retail banking subsidiaries; no longer would Chase aim to be a full-service world bank, such as its longtime rival Citicorp. Branch banking operations outside the New York area—in Arizona, Florida, and Ohio—were eliminated. Successful consumer lending operations were shorn up through such moves as the 1993 acquisition of consumer mortgage company Troy & Nichols, Inc. Overall, Chase intended to concentrate on three areas: regional banking in the New York tristate region; national consumer operations in credit cards, mortgages, and automobile loans; and international investment banking.

Chase also began at this time to focus more on technology, a particular strength of the man Labrecque chose as his president, Arthur F. Ryan, who had been in charge of the firm’s consumer bank. The company initiated a $500 million program to upgrade its information processing systems. It also entered into the online home banking arena through alliances with Microsoft Corporation, Intuit Inc., America Online, and CompuServe.

Perhaps most importantly, Labrecque and Ryan embarked in 1992 on a program to transform Chase’s corporate culture. In addition to efforts to bolster quality control and customer service, perhaps the most important addition to Chase’s operations was that of teamwork; the bank had historically suffered from turf wars. As a result of these efforts, by 1994 cost-containment efforts had translated into an improvement in the bank’s overhead efficiency ratio (noninterest expenses divided by revenues) from 75 percent to 60 percent. Following a net loss of $334 million in 1990, Chase enjoyed four successive years healthily in the black; 1991 showed $520 million in net income on net revenues of $3.35 billion, while 1994 showed $1.08 billion in net income on net revenues of $3.69 billion.

The question for Chase in the mid-1990s was whether all of Labrecque and Ryan’s efforts had come soon enough to save the bank’s independence. In the fiercely competitive environment of the times, Chase had actually lost ground; increasing consolidation engendered through a mind-boggling series of bank mergers from 1993 through 1995 had caused Chase’s ranking among U.S. banks to fall from second to seventh in terms of total assets. Weakness in the price of its stock, reflecting ongoing investor skepticism, not only prevented Chase from strengthening itself through further acquisitions but also made the bank itself vulnerable to takeover. Moreover, the company’s June 1995 announcement to lay off an additional 3,000 to 6,000 workers (or 8.5 to 17 percent of its workforce) by early 1996, further fueled takeover speculation.

Merging with Chemical in 1996

Finally, on August 28, 1995, the wait was over. Chemical Banking Corporation announced a merger with Chase Manhattan. The $10 billion stock swap transformed sixth largest Chase and fourth largest Chemical into the largest banking company in the United States with assets of nearly $300 billion. Although it was termed a merger of equals, it was technically an acquisition of Chase by Chemical even though the combined corporation adopted the more prestigious Chase name. In September 1995, the first round of executive positions was announced with more than half the positions going to Chemical executives. Chemical’s takeover of Chase was consummated on March 31, 1996.

Chemical, like the Bank of Manhattan, was formed as an offshoot of a nonbanking entity. In 1823 the New York Chemical Manufacturing Company was established, then one year later it created a banking division called Chemical Bank. Following the passage of more liberal banking laws in 1838 as well as the expiration of the original charter of New York Chemical Manufacturing, Chemical Bank was reincorporated in 1844 as a bank only. By 1851 all of the chemical division’s inventories and real estate holdings had been divested.

The depression of 1857 hit many banks hard, with 18 New York City banks closing in a single day. Chemical Bank earned the nickname “Old Bullion” during the crisis by continuing to redeem bank notes in specie for several days after all other financial institutions had started issuing paper loan certificates. In 1865 the bank acquired a national charter under the National Bank Act of 1865 as the Chemical National Bank of New York. Chemical grew rapidly during the final decades of the 19th century, entering the new century as one of the largest and strongest banks in North America.

Following a period of decline in the early 20th century marked by extremely conservative management, Chemical began diversifying in the 1920s under the leadership of Percy H. Johnston. He set up a trust department and engineered the bank’s first merger, in 1920, with Citizens National Bank, a small but wealthy New York commercial bank. In 1923 Chemical established its first branch bank, and by decade’s end had 12 branches in Brooklyn and Manhattan; the first overseas office, in London, was opened in 1929. That same year, the bank reincorporated as a state bank under the name Chemical Bank & Trust Company, then changed its name to Chemical Bank Trust Company following a merger with United States Mortgage and Trust Company. Chemical weathered the Great Depression through careful management of its assets. By 1946, when Johnston retired, Chemical had grown to become the seventh largest bank in the United States.

From 1946 to 1972, Chemical’s assets rose from $1.35 billion to $15 billion. This growth stemmed largely from a series of mergers, starting in 1948 with a takeover of Continental Bank and Trust Company of New York. Eight mergers were consummated between 1951 and 1972, with the first major one being that with the Corn Exchange Bank and Trust Company in 1954. This merger brought Chemical 98 additional branches throughout New York City. A second major 1950s merger came in 1959 when Chemical merged with New York Trust Company, which had a large trust and wholesale banking business. In the early 1960s, Chemical began to expand into New York’s suburbs, opening branches on Long Island and in wealthy Westchester and Nassau Counties. In 1968, following an industry trend, a bank holding company, Chemical New York Corporation, was formed to facilitate expansion into other financial areas.

The late 1960s and early 1970s saw Chemical significantly expand its international operations. In the 1970s the bank also diversified the services it offered to both corporate and individual customers. Among acquisitions during the decade were a finance company with branches in 11 states, two investment advisory firms, and a mortgage company, as well as the 1975 purchase of Security National Bank, which had a large Long Island branch network. Chemical also formed a real estate financing subsidiary and a wholesale bank in Delaware.

During the 1980s Chemical turned to interstate bank mergers as banking regulations continued to be liberalized. In 1987 the bank acquired Texas Commerce Bankshares in what was at the time the largest interstate banking merger in U.S. history. Texas Commerce was one of the largest bank holding companies in the Southwest and had the largest affiliate system in Texas. Two years later Chemical merged with Horizon Bancorp, a New Jersey bank holding company which was renamed Chemical Bank New Jersey.

Despite these interstate moves, Chemical entered the 1990s in a position similar to that of Chase Manhattan: suffering from the aftereffects of the crazed loan environment of the 1980s and the Third World debt crisis. Facing increasing competition, Chemical took the dramatic action of merging with Manufacturers Hanover Corporation in 1991 in the largest bank merger in U.S. history at the time. The new company, which took the name Chemical Banking Corporation, had assets of $135 billion, making it the number five bank in the country. In the years leading up to the merger with Chase Manhattan, Chemical closed redundant branches in New York, pulled out of the upstate New York and New Jersey markets, and bolstered itself in Texas with the purchase of the failed First City Bancorp in 1992 and Ameritrust Texas Corporation in 1993, becoming the leading corporate bank in Texas.

Manufacturers Hanover, for its part, had a history as long as that of Chase and Chemical and as filled with mergers. Manufacturers National Bank was formed in 1853 in Brooklyn and, after combining with Citizens Trust Company in 1914, changed its name to Manufacturers Trust Company. Hanover Bank, meantime, was established in New York in 1851, eventually merging with the Central Trust Company to form the Central Hanover Bank and Trust Company in 1929. Both Manufacturers Trust and Central Hanover grew through a slew of mergers and acquisitions, until the two banks joined forces in 1961 as the Manufacturers Hanover Trust Company. This bank became a subsidiary of a newly formed bank holding company, Manufacturers Hanover Corporation, in 1969.

Late 1990s: Consolidation and Further Takeovers

The new Chase Manhattan emerged from the 1996 Chase-Chemical merger as by far the leading New York area bank for both consumers and businesses as well as the second largest bank in Texas. On a national level, it was among the leaders in a number of areas, including private banking for the wealthy, corporate lending, credit cards, and new mortgage origination. In the immediate wake of the merger, Chase concentrated on eliminating duplicate operations, cutting 12,000 jobs in the process and a number of branches toward estimated annual cost savings of $1.7 billion. Leading the new Chase following the merger was Walter V. Shipley, who had been in charge of Chemical, while the head of the old Chase, Thomas G. Labrecque, was named president and COO. Another key figure was William B. Harrison, Jr., who was vice-chairman of Chase’s lucrative corporate banking and trading operations.

In a replay of the past, Chase Manhattan almost immediately began feeling pressure to make additional acquisitions or to even effect another blockbuster merger in order to keep pace with the rapid consolidation of the financial services industry in the late 1990s as deregulation progressed ever further. The firm was in fact soon surpassed in asset size by Citigroup Inc., which was formed in 1998 from the merger of Citicorp and Travelers Group Inc., owner of the brokerage firm Salomon Smith Barney. Speculation centered on a deal with a major investment banking firm, such as Goldman Sachs Group Inc., Merrill Lynch & Co., Inc., or Morgan Stanley Dean Witter & Co., but Chase was unable to complete such a merger. In July 1999, Harrison succeeded Shipley as CEO of Chase Manhattan (becoming chairman as well in January 2000), and the new leader managed to complete some smaller, strategic deals. In December 1999 Chase acquired San Francisco-based Hambrecht & Quist Group Inc. (H&Q) for about $1.35 billion. H&Q was a relatively small investment bank, with annual revenue of only about $373 million, but it specialized in a then-hot area: high-tech stock offerings. Two other smaller acquisitions also occurred in 1999, that of the mortgage business of Mellon Bank Corporation and the credit card portfolio of Huntington National Bank. Harrison’s appointment was also seen as an impetus for the 1999 launch of Chase.com, a new operating unit that aimed not only to take the bank’s traditional businesses into cyberspace but also to invest in new Internet ventures such as multibank consortia for online bill presentation and payment, trust services, and mortgage brokering.

Chase made a more substantial acquisition of an investment banking firm in August 2000 when it spent about $7.7 billion in cash and stock for Robert Fleming Holdings Ltd., a privately held British firm. By acquiring Fleming, Chase gained an enhanced presence in investment banking not only in Europe but also in Asia, where Fleming’s corporate finance operation was doing quite well. Chase had its eye on even bigger game, however, and just one month after completing the takeover of Fleming, Chase announced that it was merging with J.P. Morgan & Co. Incorporated.

Brief History of J.P. Morgan

The famous House of Morgan traces its roots back to 1838 and the founding in London of a merchant banking firm by George Peabody. Junius S. Morgan became Peabody’s partner in 1854, soon taking over the firm and renaming it J.S. Morgan & Co. in 1864. In the meantime, Junius’s son, John Pierpont (J.P.) Morgan, had established a New York sales and distribution office called J.P. Morgan & Co. in 1861. J.P. Morgan inherited his father’s businesses upon his death in 1890 and consolidated them five years later under J.P. Morgan & Co. Morgan played a key role in financing many of the businesses that turned the United States into an industrial power around that time, including General Electric Company, U.S. Steel, and AT&T. Taking on the role later played by the chairman of the Federal Reserve, Morgan was instrumental in pulling a group of bankers together to stave off the 1907 financial crisis. There was much criticism, however, for the power wielded by Morgan and his bank, particularly from the system of interlocking directorships that led Morgan partners to hold 72 directorships on the boards of 47 corporations—corporations that were worth $10 billion. A 1912 investigation into these interrelationships led to the passage of the Federal Reserve Act of 1913 and the Clayton Antitrust Act of 1914, the latter of which ended reciprocal directorships.

Following J.P. Morgan’s death in 1913, his son, J.P. (Jack) Morgan, Jr., became the firm’s senior partner. The company continued to thrive but the disastrous business practices of banks during the 1920s, which played a key role in the subsequent 1929 stock market crash, led to the enactment of new banking regulations in the early 1930s that changed the course of J.P. Morgan’s history. The Banking Act of 1933, better known as the Glass-Steagall Act, separated commercial and investment banking. J.P. Morgan & Co. elected to pursue commercial banking and spun off its investment banking business as Morgan Stanley & Co. Incorporated in 1935.

In 1940 J.P. Morgan & Co. Incorporated was incorporated under New York State law. Two years later, the firm went public. Needing more capital and higher lending limits, J.P. Morgan merged with Guaranty Trust Company in 1959 to form Morgan Guaranty Trust Company of New York. Ten years later, a new bank holding company was formed called J.P. Morgan & Co. Incorporated, which had Morgan Guaranty as its principal subsidiary.

During the late 1960s and 1970s J.P. Morgan began venturing back into the investment banking sector but only outside the United States, where Glass-Steagall did not hold sway. Eventually, by the late 1980s, U.S. regulators began loosening the restrictions. The Federal Reserve gave J.P. Morgan permission to underwrite corporate debt securities in 1989, followed one year later by permission to underwrite equities. But J.P. Morgan’s move back into investment banking progressed at a slow pace compared to its rivals, who were busily gobbling each other up. Working to build up a new investment banking operation from scratch, J.P. Morgan largely missed out on the great high-tech IPO boom of the late 1990s. At the same time, the company’s asset management arm continued to focus on its traditional customers—the elite—meaning that it for the most part missed another boom of the 1990s: individual investing by the masses. Trying to make up for this shortfall, J.P. Morgan in 1997 purchased a 45 percent stake in American Century Investments, the fourth largest direct distributor of mutual funds in the United States.

The J.P. Morgan Chase Era Begins

At the end of 2000, Chase Manhattan acquired J.P. Morgan in a deal valued at about $32 billion. The newly named J.P. Morgan Chase & Co. boasted assets totaling $660 billion, ranking it behind only Citigroup and Bank of America Corporation among financial services firms. Douglas A. Warner III, the head of J.P. Morgan, was named chairman of J.P. Morgan Chase, while Harrison, Chase’s head, was named president and CEO. The new banking giant had two main units: J.P. Morgan, comprising global commercial banking services, including investment banking, wealth management, institutional asset management, and private equity; and Chase, the consumer banking operations, including the bank branches in the New York area and in Texas, credit cards, mortgage banking, and consumer lending. Comparing the old Chase with the new J.P. Morgan Chase, the merger greatly reduced the relative size of the consumer operations, from which only about 27 percent of the revenue and 19 percent of the pretax earnings would now be derived. Looking to generate annual cost savings of $3 billion, J.P. Morgan Chase announced that it would be eliminating 5,000 jobs from its workforce, would consolidate the processing systems of its two predecessor firms, and would sell off $500 million in real estate. There was also speculation that, with the heart of the firm clearly on the commercial side, J.P. Morgan Chase might eventually divest some of its consumer businesses, such as credit cards and auto loans, which were being increasingly viewed as noncore operations.

Principal Operating Units

J.P. Morgan; Chase.

Principal Competitors

American Express Company; Bank One Corporation; Bank of America Corporation; The Bank of New York Company, Inc.; The Bear Stearns Companies Inc.; Capital One Financial Corporation; Citigroup Inc.; Credit Suisse First Boston; Deutsche Bank AG; Dime Bancorp, Inc.; First Union Corporation; FleetBoston Financial Corporation; General Electric Capital Corporation; Goldman Sachs Group Inc.; HSBC Holdings plc; Household International, Inc.; KeyCorp; Lehman Brothers Holdings Inc.; MBNA Corporation; Merrill Lynch & Co., Inc.; Morgan Stanley Dean Witter & Co.; UBS AG; Wells Fargo & Company.