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JP Morgan Chase to Be “Powerful Competitor”

Last month’s announcement of Chase Manhattan’s acquisition of JP Morgan, to form JP Morgan Chase & Co, should prove a formidable face in the market. “Chase was a powerful competitor beforehand, and it will be even more so following its alliance with JP Morgan,” says one banking rival. The new bank is due to begin operating in the first quarter of 2001.

As in past mergers, industry sources expect Chase to move swiftly. Since the 13 September announcement, the bank has not only decided upon its new name, but it has also appointed a number of managers to lead the merger.

The wholesale business will be known globally as JP Morgan and will encompass investment banking (including strategic advisory, equity and debt capital raising, credit, and global trading and market-making activities), operating services, wealth management, institutional asset management and private equity. The retail business will be known as Chase.

JP Morgan’s Douglas Warner III, who has been named chairman, and Chase’s William Harrison, Jr, named president and CEO, will lead the firm. Each will act as co-chair of the group’s Executive Committee. The members of the Executive Committee, reporting to Harrison, include: Geoffrey Boisi, David Coulter, Ramon de Oliveira, Walter Gubert, Thomas Ketchum, Donald Layton, James Lee, Jr, Marc Shapiro and Jeffrey Walker. Gubert will be chairman of the JP Morgan investment bank, while Boisi and Layton will be co-CEOs of the investment bank and co-ordinate all of the wholesale banking activities. Lee will head the investment bank’s new business and commitments committees, while de Oliveira will head the institutional asset management and wealth management businesses. Coulter will continue to head the retail business of the firm and lead its Internet initiatives. Walker will continue as head of the private equity group, Shapiro will continue in his present capacity as head of finance, risk management and administration, and Ketchum will co-chair the merger transition team with Shapiro.

In addition, Denis O’Leary and Nicolas Rohatyn (who heads LabMorgan) will co-head the combination of Chase.com and LabMorgan, reporting to Coulter.

Fixed Income

Outside of these appointments, sources close to the bank say Don Wilson, Chase’s global head of Treasury Trading, and William Winters, JP Morgan’s head of Global Markets, have been named co-heads of the Fixed Income group, which includes the FX and derivatives divisions. The two will reportedly be responsible for determining the structure of the trading division, including such strategic decisions as whether to follow the Chase model of regionally based multi-product divisions, or the global-by-product structure of JP Morgan. Calls to the bank’s press office were not returned.

Winters was named head of JP Morgan’s Markets group in February of this year, overseeing all market making activities across the cash and derivatives markets in debt, equity and FX. He was previously responsible for the global interest rate and FX business for the group.

Meanwhile, Wilson is currently a managing director in Chase’s Global Markets Group, with responsibility for the group’s Global Trading division. The division engages in trading and sales for foreign exchange and currency derivatives, as well as trading and sales for interest rate and specialty derivatives and non-US sovereign debt securities in New York and major centres in Europe and East Asia.

Wilson, who originally joined the former Chemical Bank in 1973, spent the early part of his career in the domestic corporate banking sector. He moved to Tokyo in 1985, where he was responsible for the bank’s activities in Japan and East Asia until he returned to New York in 1987 to serve as chief of staff for the Global Securities & Foreign Exchange group in New York, where he was functionally responsible for credit, control, operations, technology and human resources for the group, as well as for the operating management of the bank’s foreign branches. His next assignment was as head of Securities & Derivatives Trading and Sales in New York.

From December 1988 to March 1991, Wilson was the bank’s general manager for London and regional manager for Europe and the Middle East, with direct line responsibility for nearly all the bank’s revenues, expenses and risk in these markets. Upon repatriation from London in 1991 until his current assignment commencing in January 1992, Wilson was responsible for most of the bank’s activities in Europe, East Asia and the Middle East, as well as all trading and sales activities in New York for US government securities, foreign exchange and derivative products.

Wilson currently reports to Layton, Chase’s vice chairman in charge of the Global Markets sales and trading division. Layton oversees world-wide capital markets and trading, including FX, risk management products, emerging markets, fixed income, securities and commodities, as well as the bank’s treasury activities including funding and the investment securities portfolio.

Layton originally joined the former Manufacturers Hanover Trust in 1975, and survived the later mergers with both Chemical Bank in 1991 and Chase in 1996. At MHT, he was elected a senior vice president in 1983 after having founded the asset/liability management department of the group’s Treasury Division in 1982. In that capacity, his responsibilities included funding and domestic portfolio investing, financial futures brokerage, and certain interest rate swap activities. In 1986, he was named senior managing director, responsible for all interest rate and currency swap activities, loan syndication and sales, futures and options brokerage and domestic portfolio investing. He was later made jointly responsible for the MHT Global Bank, with primary responsibility for capital markets, trading, treasury and capital markets-intensive client activities.

“This merger is a breakthrough for JP Morgan and Chase that will position the new firm as a global powerhouse,” said JP Morgan’s Warner in a statement. “With a formidable client franchise and a potent array of capabilities to address the full spectrum of clients’ needs, we see exceptional prospects for sustained growth and profitability. A diversified revenue stream enhances those prospects.”

Chase’s Harrison added, “This transaction combines the most comprehensive group of clients with extensive financial and intellectual capital. We will have the capability to meet our clients’ needs anywhere in the world with trusted advice and integrated execution. Our new firm will have leadership positions across a broad array of businesses in growth markets.”

“Our past mergers have demonstrated that the expansion of product capabilities applied to a complementary set of clients results in incremental revenue growth. Expense savings will also result as we combine duplicate functions. As in the past, we will focus on a smooth integration and make the new organisation the best of both,” he added.

While most people know that the addition of one plus one does not necessary equal two in this business, if the reported 1999 FX trading revenues of both Chase and JP Morgan were to be combined, they would total $1.357 billion, which would put the combined bank in a very close second to Citi, based on last year’s results.

The merged company will have assets of approximately $660 billion and stockholders’ equity of more than $36 billion. On a pro-forma basis, JP Morgan Chase & Co. in 1999 would have had net income of approximately $7.5 billion and revenues of approximately $31 billion.

Profit & Loss

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