Repercussion of J.P. Morgan-Chase Manhattan Bank Acquisition Merger
On September 17, 2000, JPMorgan and Chase proposed an announcement that they would merge. After this announcement, Warner said that vast product portfolio, but limited client base at JPMorgan and the reverse situation at Chase was the prime factor that led to the merger. Referring to the situation at JPMorgan, Warner said, “Ton of content and not enough clients. ” William B. Harrison, Chairman of Chase was appointed as the CEO and President of the JPMorgan and Chase merger; While Warner was appointed the Chairman.
Both firms felt that the future of their industry was to offer more products in a quality manner. For the financial year of 2000, the combined revenues of both companies were about US $33 billion and net income was US$ 5. 7 billion. The merger resulted in US $42 billion in equity capital for JPMorgan Chase; and more than 5,000 corporate clients in North America, Europe, Asia and Latin America. The company declared that the merger would generate pre-tax synergies amounting to US $3 billion, cost savings of up to US $2 billion and US $1 billion increase in net revenues.
Below are the figures and percentages for each monetary aspect of the firm: ? The company aimed to achieve annual revenue growth of 10-12%, 15% growth on cash earnings per share and 20-25% from in return on equity. ? Collectively, the new entity faced a 52% exposure in equities, 25% in fixed income, and 53 % in cash and other products. ? Geographically, 65% of their dealing was in the United States, leaving foreign markets with 35%. For their client base, the firm faced a 60% exposure to institutional investors, and remaining 40% to private investors.
Such figures suggest that they brought to the table a much diversified base from which to build a global leader. Chase analysts had calculated that if JPMorgan can capture 20% of Chase’s top 1,000 clients, then they will be able to produce an additional $400 million in revenues. Considering the fact that there is only a 6% overlap in the current client base, if leveraged correctly this type of cross marketing could prove very lucrative for J. P. Morgan Chase. The major question was whether or not revenue synergies that this deal hinged upon would ever be seen, and gradually emerge.
The merger was different from other mergers in the past; due to the fact that rather than cost saving as the primary focus of financial relief. The plan was based on a combined revenue growth and development in different market segments in order to provide more financial clout. The JPMorgan Chase marriage aimed at capitalizing on particular high growth markets that had eluded both companies in previous attempts. Previous acquisitions by chase failed to place them in the top 10 of either securities underwriting or M&A advisory board business looked to JPMorgan.
Similarly, J. P. Morgan had it’s own costly and disappointing move from commercial banking to investment grade dealings The company had a great deal of problems due to a lack of capital backing in providing debt financing and other commitments to larger clients. Together these two major players in their own respective fields hoped to break into the bulge bracket platform with an unparalleled client base, global capabilities and product leadership in growth markets. William B. Harrison led the firm to great new heights. Banking runs in Harrison’s blood.
In 1931, Harrison grandfather founded the Peoples Bank and Trust Company in Rocky Mount, North Carolina (Members of the Board Biography: William B. Harrison, Jr. , 2008). Harrison considers his adeptness on loyalty proliferation among his employees as the crucial factor in making mergers work. He believes it is favorable to place complete trust on them in order to do well with their jobs (referenceforbusiness. com, 2008). Such penchant for employee and company dedication stemmed from a childhood free of rules and curfews.
Bill said: “My dad and my mom both were very trusting. ” They expected only the best behavior from us and trusted us to deliver. They taught us to have the confidence in ourselves to trust others. ” (Harrison, 2008). However, Harrison’s leadership approached lacked the charisma and take-charge attitude, which is evident among his industry peers. He believed that ruling with an iron fist was not proper, he’d rather used a consensus approach in order to administer the company (Members of the Board Biography: William B.
Harrison, Jr. , 2008). Harrison gathered his top executives around a table once a week to vent. Daniel Goleman’s book called Emotional Intelligence urged him to give it his executives as part of performance assessement (Members of the Board Biography: William B. Harrison, Jr. , 2008). Harrison told Timmons: “The big, complex global institutions of the future will be run by people that can build great teams. These businesses are too complex for one person to think that they can understand, run, and manage everything themselves.
” (Members of the Board Biography: William B. Harrison, Jr. , 2008) Critics dismissed such explanation as a cover-up for a weak leadership. Lee R. Raymond, the CEO of Exxon Mobil Corporation and a member of the board of J. P. Morgan Chase said: “There’s this notion out there that these guys sit around holding hands, then take a vote and see how it turns out. I don’t think that’s how the bank runs. ” Bill instilled further coherence with the company by utilizing off-site retreats (Members of the Board Biography: William B.
Harrison, Jr. , 2008). He brought in the Duke University coach Michael Krzyzewski to address team building issues for his workers. He hired erstwhile General Electric CEO Jack Welch in order to initiate a training institute for company executives (Members of the Board Biography: William B. Harrison, Jr. , 2008). For Harrison, getting his people to work together was integral to the company’s success saying:” We’ve spent a lot of time doing deals to get the platform in place.
The key to taking the firm to the next level is taking care of the people factor. ” (Harrison, 2008). The synergy of competitive streak and boundless energy was the outcome of Harrison’s emphasis on customer and employee relations. Harrison commented on the retreat: “For the first session we spent 12 hours in a room together, and the rule was you could only talk about what you didn’t like about people. We got everything out in the open, established trust in each other and were able to move forward from there as a team.
” (Harrison, 2008). Pre-merger technology costs were estimated at 10 to 15 percent of each bank’s revenue. The organizations technology organizations varied in a number of important ways including procedures for managing costs, as well as for choosing new IT investments. Harrison had two objectives for IT: first to ensure that the merger’s plans for technology were met; second to make technology a weapon of competitive differentiation.