When Chase Manhattan Bank Corp. Chairman-CEO William B. Harrison Jr. signed off on his companyâs historic acquisition of J.P. Morgan & Co. Inc., he bought not only its boardroom contacts and lucrative global M&A business, but something even more valuable: its venerable b-to-b brand.
The deal underscores the dizzying pace of consolidation in corporate finance and, even more, highlights how much an upmarket b-to-b marketing name can be worth: In this case, $36 billion.
Indeed, only seconds after Harrisonand J.P. Morgan Chairman-CEO Douglas A. ââSandyââ Warner III announced the pact in a Sept. 13 Webcast, it was revealed that Morganâs name would take precedence over Chaseâs.
ââThis is a momentous day,ââ a clearly giddy Warner said, no doubt due in part to the $252 million he stands to net from the deal. ââTogether, we want to introduce you to the powerhouse created by a breakthrough transaction. That powerhouse is J.P. Morgan Chase & Co.ââ
The deal is expected to close in next yearâs first quarter.
High-placed financiers said that Chase b-to-b bankersâ new J.P. Morgan calling cards will win them lucrative investment banking business that they wouldnât have before.
ââJ.P. Morganâs name has always had something about it, a mystique,ââ said the CEO of the investment subsidiary of a top 10 global bank, who asked not to be identified. ââYears ago, we used to say they had a halo. Chase does not have that cachet.ââ
While Chase has gone about building a solid investment banking business ever since merging with Chemical Banking Corp. in 1996--recently, for example, it snapped up dot-com specialist Hambrecht & Quist L.L.C.--its brand is still associated with consumer banking. This deal stands to change that.
ââJ.P. Morganâs name is incredibly valuable as an investment banking franchise. Chase was keen to capture that,ââ said David Haigh, CEO of London-based consultancy Brand Finance.
Chase executives were reluctant to comment on the record. One insider at the New York-based company, however, said bankers there were pleased with the investment banking marketing clout the J.P. Morgan name will give them. ââNo one was surprised or disappointed with that,ââ said the executive, who asked not to be identified.
J.P. Morganâs bankers, meanwhile, will get access to Chaseâs enviable worldwide complex; the bank has offices in some 50 countries, compared with 33 for J.P. Morgan. B-to-b banking is becoming increasingly international and companies without an extensive network are at a severe disadvantage, especially when working with global-minded Internet customers. ââWe can take our platform to thousands of new clients,ââ said Michael Golden, a VP at J.P. Morgan.
Nearly all of J.P. Morgan Chaseâs b-to-b banking businesses will be marketed exclusively under the J.P. Morgan moniker. These include cash cows such as equity and debt capital markets, global trading and institutional asset management. The retail business will be marketed under the Chase name. Some commercial practices, such as small and midmarket banking, will retain Chase brands.
The approach makes sense. Most CFOs of big corporations and dot-coms alike would prefer to tell their board of directors that they chose J.P. Morgan, not Chase, to handle their bond underwriting business--though Chase does more than J.P. Morgan in terms of volume.
Some small-business customers, on the other hand, would prefer dealing with Chase bankers over their J.P. Morgan counterparts, who are often as aristocratic in manner as they are bright.
Tellingly, however, J.P. Morgan and Chase have not yet decided on branding for the combined companiesâ all-important venture capital businesses. Both Chase and J.P. Morgan executives said the topic has not yet been broached. Undoubtedly, executives at both institutions want VC branding bragging rights.
Chase is the bigger player in b-to-b VC, with units such as Chase Capital Partners and Flatiron Partners. But J.P. Morgan has made much VC headway in recent years with J.P. Morgan Capital and, more recently, LabMorgan, its e-finance unit. LabMorgan, which invests in and incubates financial Internet companies, has garnered a good deal of buzz in dot-com circles since launching last March.
Size isnât everything
J.P. Morgan Chase will have some $660 billion in assets under management, making it the third-largest U.S.-based financial services company. Fidelity Investments Ltd. is the biggest with $956 billion, followed by Citigroup with $717 billion.
But in investment banking, size isnât everything. Branding power and prestige are more important. And while J.P. Morgan Chase will have plenty of both, smaller competitors Goldman Sachs & Co. and Morgan Stanley Dean Witter & Co. have more.
Goldman Sachs and Morgan Stanley have, respectively, $250 billion and $366 billion in assets under management. Yet both companiesâ 1999 investment banking revenues outstripped both Chaseâs and J.P. Morganâs, especially in the wallet-fattening domestic IPO underwriting and global mergers and acquisitions businesses.
Moreover, both companiesâ investment banking brands are still unparalleled, especially among b-to-b companies. This is especially true for Goldman Sachs which, despite doing little advertising, has been as successful getting cozy with new economy types over the last few years as it was with leveraged buyout titans in the 1980s.
But in financial services, brands and dynasties can be torn down and built up with dizzying speed.
Just a little over a decade ago J.P. Morgan was the biggest U.S. bank, while neither Chase nor Chemical ranked in the top 10. This was before J.P. Morgan began building an investment banking practice in earnest and focused primarily on managing money for rich individuals and businesses. Now, J.P. Morgan is the ninth-largest bank in the U.S.
Goldman Sachs, meanwhile, was well regarded a decade ago but lacked the sheen it has today. And Morgan Stanley was still years away from gaining a mega-brand through its 1997 merger with Dean Witter and Discover & Co.
The combined J.P. Morgan Chase should have the size and branding potential to quickly propel itself into the No. 3 among investment bankers. This is especially so because Merrill Lynch & Co., which currently holds that spot, is looking vulnerable now that the pool of potential merger partners is shrinking.