News of financial merger makes stock prices drop

by Brad Skillman
THE ASSOCIATED PRESS

NEW YORK - Chase Manhattan Corp. is acquiring J.P. Morgan & Co. for about $36 billion in stock, uniting two of the oldest and most prestigious financial companies in the United States.

The boards of both companies approved the deal, announced yesterday, to create J.P. Morgan Chase & Co., the companies said in a statement.

J.P. Morgan Chase will have about $660 billion in assets, rivaling Bank of America Corp., with $679 billion in assets, as the second largest bank holding company in the United States. It will still trail Citigroup, which had $791 billion as of June 30.

A merger of Chase and J.P. Morgan was seen by analysts as a good match because the banking powerhouses' array of services complement each other.

Each share of J.P. Morgan will be exchanged for 3.7 shares of Chase, or about $207 a share - a 16 percent premium above Tuesday's closing stock price for J.P. Morgan. The companies will also exchange preferred shares.

Shares of J.P. Morgan fell in early trading yesterday, however, dropping $7.56 to $177.88, after rising 10 percent Tuesday. Shares of Chase Manhattan also fell, dropping $2.56 to $49.94.

J.P. Morgan chairman and chief executive Douglas Warner will become chairman of the new company and Chase chairman William Harrison will become its president and chief executive.

J.P. Morgan played a legendary role in the development of U.S. industry. Its roots are traced to a London merchant banking firm established in 1838 by American businessman George Peabody. Junius P. Morgan became Peabody's partner 16 years later.

Junius' son, J. Pierpont Morgan, established a U.S. outpost for his father's firm and went on to become one of the financial titans of U.S. history. The firm eventually helped finance the rail, steel, mining and utilities industries in the United States and led a rescue of the financial system in 1907 following a panic on Wall Street. The incident prompted the creation of the Federal Reserve in 1913.

Chase Manhattan got its start with the formation in 1799 of Manhattan Co., established to help financial development of New York City. A successor to that company eventually combined with Chase National Bank in the mid-1950s to form Chase Manhattan Bank, which became an international powerhouse under the leadership of David Rockefeller. It later merged with Chemical Bank, which had earlier combined with Manufacturers Hanover.

"It's a good potential fit because there are quite a lot of areas where the two are complementary," said Ron Mandle, a banking analyst at Sanford C. Bernstein & Co.

For example, J.P. Morgan has a strong foothold in the investment banking arena, especially in the lucrative area of underwriting initial public stock offerings.

Chase, meanwhile, set out a year ago to build up its investment banking business by purchasing San Francisco-based Hambrecht & Quist, a boutique firm that specialized in the IPOs of technology companies.

If the merger is completed, J.P. Morgan's broader expertise would be blended with the newly named Chase H&Q's expertise with technology companies, Mandle noted.