Chase may buy J. P. Morgan for $40 billion

Price is independence of most famous name in American finance

Investment banking

September 13, 2000|By NEW YORK TIMES NEWS SERVICE

NEW YORK - Chase Manhattan Corp. is in serious talks to acquire J. P Morgan & Co. Inc., an executive close to the deal said yesterday. The deal, expected to be worth at least $40 billion, would unite two of the oldest and most powerful forces in New York finance.

Details of the negotiations were not immediately available, although the executive said an announcement could come as early as today. The transaction would end the independence of J. P. Morgan, the most famous name in the history of American finance and the nation's fifth-largest investment bank.

For Chase, which has historically made smaller acquisitions, like its buyout of Hambrecht & Quist and Robert Fleming Holdings, the deal would catapult the bank into the top echelon with Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co.

Officials at Chase and J. P. Morgan declined to comment yesterday. Rumors of the deal sent J. P. Morgan shares soaring $14.6875 yesterday to close at $184, a 52-week high. Chase's stock closed down $4.625 to $52.875.

The deal is part of a recent wave of consolidation in investment banking, where size and diversity - both in business lines and in geography - are becoming more and more necessary. Some investment banking officials think that as few as six to 10 global giants could come to dominate the industry in a few years.

The deal follows other large transactions like the Credit Suisse Group agreement last month to pay $13.4 billion in cash and stock for Donaldson, Lufkin & Jenrette. In July, UBS AG agreed to pay $16 billion for the Paine Webber Group. J. P. Morgan had held talks with Deutsche Bank AG, but those talks were abandoned, and takeover rumors have boosted J. P. Morgan's share price by 50 percent since early July.

Last week, Peter Hancock, J. P. Morgan's chief financial officer, resigned abruptly, fueling merger speculation.

J. P. Morgan is seen as a particularly attractive takeover target because of the steady fees generated by its strong money-management business.

Chase, the nation's No. 3 bank, reported better-than-expected second-quarter profits in July, earning 95 cents a share excluding one-time charges. Overall, Chase's earnings fell 22 percent, to $1.09 billion, or 85 cents a diluted share, from $1.39 billion, or $1.06 a diluted share.

The decline, Chase officials said at the time, was a result of the falling value of its private equity investments. Investors have been concerned that the bank's expenses are rising faster than revenue, thanks to new hiring and an effort to beef up its investment banking business.

With the latest wave of deals, the structure of Wall Street bears little resemblance to just a few years ago, when Merrill Lynch & Co. Inc., Goldman Sachs and Morgan Stanley were the leading triumvirate.

Since then, Morgan Stanley has merged with the Dean Witter brokerage firm; Salomon Brothers merged with Smith Barney and then become part of the Citigroup financial conglomerate; and Goldman Sachs went public, raising capital to fuel growth.

Along with those changes, foreign powers like Credit Suisse and UBS made their presence felt.

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