Merger of JP Morgan Chase Co

Merger of JP Morgan ac social club CoExecutive SummaryThis build on the edgeing industriousness consist the conjugation of JP Morgan chase after Co. It argues that the experience of Banking labor in the US is unique and also the impact of the uniting in JP Morgan Chase Co. It is non paradigmatic also discriminates that all b shapes are not driven efficiently. The paper talks about the jointure of JP Morgan Chase Co. victimisation The Porters The Fishbone get.T suitable of mental objectExecutive Summary 1Table of Contents 21. INTRODUCTION 31.1 Overview of Banking Industry in US 31.2 Overview of JP Morgan and Chase 32. STUDY OF MERGER BETWEEN JP MORGAN copy (2000) 42.1 Purpose of the study 52.2 Significance of this study 52.3 Limitations 53.RESEARCH archetype 63.1. The Fish Bone Model 63.2 Elements of the Model 73.3. former Research Findings 83.4. Critics for the Previous Research 84.PREVIOUS RESEARCH METHODOLOGY 95.CONCLUSION 101. INTRODUCTION1.1 Overview of Ba nking Industry in USThis paper on the Banking industry consist the mergers of wedges with a modified emphasis on the US curses. It argues that the experience of Banking industry in the US is unique and it is not paradigmatic also tells that all slangs are not driven efficiently. Mergers in banks arise beca single-valued function of macro structural circumstances and shifts to strategic motives in a period of time (Benston, Hunter, Wall, 1995). Over the few years, bank mergers and eruditions view as been occurring at a genuinely high rate.During the recent decades the US banking system is experiencing an intense structural change which is happening at a rattling rapid place. When banks document deposits made by guests create recognition evaluations and move funds they process information. The banks and the financial services industries entrants ware been very much affected by the current information processing revolution.The banks are moderately transforming themselves f rom intermediaries that have loans, deposits and securities in their balance sheets into brokers who originate loans and then allot them to others who obtain securitized pluss. This change has occurred due to rapid incr serenity of the technical advancements in processing information.1.2 Overview of JP Morgan and ChaseJPMorgan Chase Co. is one of the worlds largest, oldest, and best-known financial institutions. Since their fundament in impertinent York in the year 1799, they have succeeded and grown by listening to their customers and also by meeting their needs. Being a planetary financial services firm and with operations in more(prenominal) than 50 countries, JPMorgan Chase Co. combines dickens of the worlds best and premier financial brands J.P Morgan and Chase. JPMorgan Chase Co. is a leader in financial services for consumers investment banking financial dealing processing small business and commercial banking private equity and asset management. JPMorgan Chase Co . serves millions of consumers in the linked States and also the worlds most prominent corporate, institutional and government clients.JPMorgan Chase Co. is built on the foundation of more than 1,000 predecessor institutions that has come together over the years to form todays company. Their many long-familiar heritage banks include J.P Morgan Co., The Chase Manhattan Bank, The First National Bank of gelt, Manufacturers Hanover conceive Co., Bank One, Chemical Bank and National Bank of Detroit, each mingy tied in its time for innovations in finance and for the growth of the unify States and global economies. (The History of JP Morgan Chase Co., 2008)2. STUDY OF MERGER BETWEEN JP MORGAN CHASE (2000)On examining, there are four main paths are identify which explains explains the flat coats substructure the mergers activity. These paths are related to (1) creating economies of scales, (2) expanding in geographically means, (3) change magnitude the feature seat of govern ment base (size) and harvest-feast quipings, and (4) gaining the trade advocate. In examining these paths, it appears that, at a much higher level in Porters fishbone framework, the mergers are driven by cost reductions than change magnitude the gross revenue.Global consolidation and Downsizing allowing banks in increasing its size and securities industry capabilities while creating some technological efficiencies for the most part responsible for the cost savings of mergers. The question results on the financial process of the merged banks have resulted in conflicting conclusions. While some research has found that bank acquisitions are not improving the financial exertion of the feature banks (Baradwaj, Dubofsky, Fraser, 1992).When Chase Manhattan announced its merger with J.P. Morgan in September 2000, the companys shares were exchange at $52. (Palia, 1994). Today, they make around $30, and the press is filled with reports of the companys performance. Getting large has not helped Chase Manhattan to get better. Nor has it helped other companies. The Wall Street journal recently reported that the share prices of the 50 biggest corporate acquirers of the 1990s have fallen one-third times as much as the Dow Jones industrial Average. (Toyne Tripp, 1998). The size counts, especially in addressing the complex problems that span geographies and functions. But big doesnt make a company better at serving customers. Chase is the product of two megadeals that came earlier, its mergers with Chemical Manufacturers Hanover and.J.P. Morgan is the part of the venerable Ho do of Morgan which was traditionally a commercial bank, but has aggressively entered the investment banking business. After coquette with other merger partners from Europe and elsewhere, it finally offered the famous name and blue chip client roster to its fellow New Yorker for about $36 one million million in stock. (Madura Wiant, 1994)2.1 Purpose of the studyThe history before the acquisition is very important to consider the enormity of the product. In 1991, Chemical Banking Corp. merged with Manufacturers Hanover Corp., care the name Chemical Banking Corp., then the second largest banking institution in the United States. In 1995, First Chicago Corp. merged with NBD Bancorp Inc., forming First Chicago NBD Corp., the largest banking company based in the Midwest. In 1996, Chemical Banking Corp. merged with The Chase Manhattan Corp., belongings the name The Chase Manhattan Corp. and creating what then was the largest bank holding company in the United States.2.2 Significance of this studyIn 2000, The Chase Manhattan Corp. merged with J.P.Morgan Co. Incorporated, in effect combining four of the largest and oldest money center banking institutions in New York City (Morgan, Chase, Chemical and Manufacturers Hanover) into one firm called JPMorgan Chase Co. In 2004, Bank One Corp. merged with JPMorgan Chase Co., keeping the name JPMorgan Chase Co. In 2008, JP Morgan Chase Co. acquired The Bear Stearns Companies Inc., strengthening its capabilities across a broad digress of businesses, including prime brokerage, cash light(a)ing and energy trading globally.2.3 LimitationsIt becomes abundantly clear that there is no clear direction in terms of the mergers and acquisitions that JPMorgan Chase Co. performed in before and after the marriage of the giants happened. The merger was hailed and appreciated at the time when one of the largest mergers was in a vogue. The merger seemed to have happened through lots of pressure from competition more than anything else. Even after these so many years of being together, it is not very easy to tell if the individual entities are acting as one. (Wilson, 2003)The problem faced is really because of cohesiveness and integration. Although the merger went through the lack of a proper regulatory authority to oversee such mergers leads to situations such as the sub-prime crisis of 2007-2008.RESEARCH MODEL3 .1. The Fish Bone ModelThe coding scheme adopted for the content abbreviation that was conceptualized in the Porter strategic fashion model (Porter, 1980) as operationalized in a fishbone analysis framework (Nolan, Norton federation, 1986). The coding of the content of application approximates the use of a standardized questionnaire. Hence, content analysis has the advantage of two ease and high reliability, but it may be more limited in terms of content validity to the extent that the applications reflect the underlying utter merger decision rationale.These four paths are related tocreating economies of scales,expanding geographically,increasing the have capital base (size) and product offerings, andgaining food market power.This appears that decreasing costs than increasing gross revenue drives much of the merger activity at a higher. galore(postnominal) of the applications verbalize that the reduction of costs as a reason for the merger. In addition to it, many of the a pplications went further than a general bid of cost reduction explaining that the combined institution would create economies of scales which would result in a reduction in costs as justification for their merger/acquisition request.3.2 Elements of the Model-Location-Product-Competitors-Market TrendsHowever, since the merger/acquisitions indoors the banking industry should provide current data (i.e. Community Reinvestment Act compliance or Herfindahl Indexes) to reinforce the merger/acquisition stated rationale, there is more validity in the stated rationale for mergers/acquisitions of this industry than in others using this come near (Cornett De, 1991). The use of the widely accepted Porter strategic model provides an appropriate framework for both inductive and deductive conclusions.3.3. Previous Research FindingsThe model provides a tight linkage to the strategy literature for validity of the coding categories. More than that, the use of multiple enrollrs and a referee ins ure a high percentage point of reliability in coding effort. For each application, two coders independently code each paragraph and the results are entered into a spreadsheet for data management purposes. The results of the two coders were then compared, and, if there was any disagreement, the referee discussed the differences with the other coders and made a final determination. For each application, a resultant tabulation was created and overlaid upon the fishbone for visual inspection. Hence, this model contains the total numerical count of the entire sample.3.4. Critics for the Previous ResearchPrevious literature finds an empirical evidence of links among mergers and financial performance, mensurable in terms of either profitability or operating cogency (Berger, Demsetz, Strahan, 1999). The US experience cannot be a global paradigm because US banks has dominance in the global financial arena. Prior to the US bank merger brandish, the banks that operated with long standing geographic restrictions, could not expand their sleeve networks when market opportunities arose outside their market areas. Hence, a sustained period of banking inconvenience began in 1981.The thrift industry collapsed many banks experienced woe in the early 1980s due to credit problems ranging from Latin American loans, loans in oil-rich domestic areas, loans for corporate mergers and commercial real estate. The failing or dissipated institutions were often are taken over by expansion-oriented commercial banks Nations bank grew through astute acquisitions during the period. Government-assisted mergers accounted for majority of the bank mergers in the United States between 1982 and 1989.This period of distress mergers led to a shift in regulatory philosophy. Until this period, regulators guided by the antitrust law and the Bank Holding Company Acts of 1956 and 1970 placed some restrictions on bank activities and expansion, using the criteria that firms with monopolistic power wi ll exploit it. In this period, many regulatory economists adopted Chicago new learning approach, which shifted the attention from monopoly position to contestability. Regulatory test for market power was weakened, that permitted federal regulators to override product-line and geographic restrictions in approving distress mergers. The Federal Reserve used regulatory flexibility to force modernization in U.S. banking laws. Bank regulators increasingly operated on the premise that the industry is overbanked and financial innovations has made capital and credit universally available. One approach was the process of an upscale retail banking strategy.PREVIOUS RESEARCH METHODOLOGYThe Banks using this approach identify a preferred customer base to which they can give up both traditional banking services-short-term consumer loans, long-term mortgages, depository services-and nontraditional services such as mutual funds, insurance, and investment advice. The second and related approach wa s a shift away from maturity transformation and interest-based income, towards maturity matching, secondary market sales, and fee-based income.Much of the revenue from upscale households take the form of fees, encouraged by the growth of secondary loan markets and of banks involvement in the household portfolio management. The rest of interest expenses within banks overall expenses is declined since 1982 noninterest income has been an increasing share of bank income since 1978 (DeYoung, 1994). giving banking firms have led to the second phase of the U.S. bank merger wave because they have most aggressively pursued upscale-retail and fee-based strategies. Since the banks are not more efficient or more profitable than the smaller banks they purchase, earnings attach have not financed these acquisitions, while Wall Street has. Wall Streets analysts have adopted the concept of banking industry excess capacity and brokers and underwriters have take in the substantial fees from the eq uity issues that have provided the cash needed to sweeten offers for designate banks equity shares (Serwer, 1995) (Chong, 1991).CONCLUSIONAlthough there are many frameworks used for analysis of other industries, they often do not work within the banking industry because of the imposed regulatory constraints the model reveals that the Porter Model will be suitable in this case for examining the rationale behind the merger/acquisition activity for the banking industry. There are four main paths, for the period examined that explains the reasons behind the mergers/acquisitions activity.Utilizing the synergies between the two partners is a common phrase found throughout the applications. The usual scenario is that the smaller partners will combine with the larger partners in order to develop the economies of scale and also to reduce their combined costs. The remaining three paths are related to increasing gross revenue but at a much lower level on the fishbone framework.Most of the app lications warrant the merger either directly or indirectly by referencing the combined banks ability to expand geographically into various markets that the individual banks had not previously had a market presence. As a result, through the geographical expansion, the bank would be able to decrease the total risk as headspring as increase the sales of the products and, thus, increase overall gross revenue.Many of the merger/acquisition either directly or indirectly confirm their mergers through the fact that the combined asset base (size) would be larger and, thus, allowing the banks to make loans to companies that the individual banks could not have previously serviced due to capital base lending regulatory restrictions. In essence, the larger capital base allowed the merged institutions to offer a new product (jumbo loans) to an existing customer or to gain new customer through the new product offering.In addition, on the same path many of the applications justified the merger through the ability to offer a greater array of products. The smaller partner (usually) would be able to offer products already carried by the larger partner and that previously due to the smaller partners size they had not able to offer. In both cases, the merger would allow the combined institution to offer a greater product array increasing their sales and, thereby, increasing gross revenue. The last path deals with the, often, indirect merger justifications of increasing market power. Through the merger, the merged banks would be better able to compete with banks within their market, increasing their product sales, and, thus, their gross revenue.