Introduction:

The advent of globalization, privatization, deregulation in the financial market and liberalization adopted by several counties the world over, coupled with the increasing advances in technology and banking processes, has made Mergers and Acquisition gain ominous popularity as an external growth strategy and an important medium for companies to expand product portfolios, enter new markets and have access to new technologies that will enable them compete on a national or global scale. Mergers and Acquisitions present an organization an opportunity to expand into a new terrain and seek competition on larger scale in order to maximize profit and minimize cost. In the banking sector today, there has, and still is, an exponential increase of Mergers and Acquisitions in the majority of all the countries in the world. JP Morgan Chase & Co. made an announcement of the plans to secure a merger on the 14th of January 2004 between the two banks JP Morgan Chase, a bank with head-quarter in New York and Bank One, a bank with head-quarter in Chicago, now to be called, JP Morgan Chase & Co. Here is a written Essay about the merger of the two illustrious banks in the United States. An in-depth analysis will be made of the motive behind the merger; how it was financed; the regulatory bodies involved in the merger; the impact it had on the financial market and the public at large; and amongst other issues, the aftereffect of the Merger, or should I say, Acquisition. According to Arnold (2005), Will it then be grossly incorrect to say that the coming together of JP Morgan Chase and Bank One tilt towards a horizontal merger1? Certainly not.

Background:

JPMorgan Chase & Co., a multinational banking corporation of securities, investments and retails; and according to Bloomberg, as at, October 2011, $2.3trillion. The bank operates by providing financial services both locally and internationally all across the globe with headquarter in Manhattan, New York. The bank has always been at the fore-front in terms of the provision of such service in commercial banking activities, managing assets for clients, also in the area of private equity, processing financial transactions and services to consumers, playing a leading role in investment banking, and also governmental and institutional clientele under its JP Morgan and Chase brands.

Bank One:

Bank One ranks sixth in terms of size, among banks in United States. Listed on the New York Stock Exchange. The bank can trace the origin to Ohio, operating, as at that time, under the name First Bancgroup of Ohio; which was a holding company for such banks as the City National Bank of Columbus, Ohio and many others in the state. It later changed its name to Banc One Corporation and in 1998, secured a merger with a bank in Chicago by the name of First Chicago NBD Corporation under a new business name - Bank One Corporation, re-locating their headquarters to Chicago.

Bank One was well known for its investment in informational technology and also boasts of a proactive and intelligent management team. As at acquisition, the bank was the worlds largest Visa Card issuer, with a little over 52 million cards to its name, servicing retail household clients and commercial customers. The bank was also in the business of managing investment assets which was in the region of $176 billion, its market capitalisation was $290 billion.

Motive for the Merger:

A dominant rationale applied to explaining Mergers and Acquisition activities is that acquiring firms seek improved financial performance; the coming together of these two gigantic and illustrious American banks cannot be said to be an exception.

(i). Economies of Scope:

The merger of JP Morgan Chase and Bank One opened up a completely new area of the market, that is, retail banking, an area JP Morgan Chase had not operated in before, and also made the bank exercise control over about 2100 already-operating branches and access to a range of clientele not before acquired or exposed to, in areas it has not traded or lacked experience before; that is Chicago and in business of credit card. JP Morgan increased its market share as a result of this merger and also the company was able exert its influence with its reputable brand.

Analysts have also said that the merger with the Bank One will paved the way for J.P. Morgan Chase to extend its influence into the Midwestern and Southwestern parts of the United States; this will also reduce its much dependence on trading and investment banking activities.

The merger with Bank One paved the way for JP Morgan Chase to penetrate into a larger market without the need for the necessary specialist knowledge and infrastructure to commence operation, exert its influence, set up operational branches, build-up its clientele base and compete in the new area. It would then be right to say that the acquisition of a well-established and reputable competitor that specializes in retail banking was a brilliant financial decision by JP Morgan Chase, thus achieving a double-barrel advantage of eliminating a competitor and gaining access into a new market with enough ready-made experience to hit the ground running.

Apparently, it would not be out of place to say that the merger was justified, since JP Morgan Chase will now be able to improve on its services in its already established business of credit cards which it has been effecting through the Chase Financial Services, Bank One on the other hand, also received the expertise of investment banking and trading from JP Morgan Chase. Indeed this was a very brilliant move by both parties.

(ii). Synergy:

The idea behind this is that the valuation of the combined company will be greater than that of the individual parts when added together. The aim of the merger was to better position JP Morgan Chase with enough size and capital to be at par with its major competition, that is, Bank of America and Citigroup.

Merging with Bank One would make JP Morgan & Co. to be Americas number two bank behind Citigroup, with total assets of about $1.2 trillion and 2,350 branches in about twenty states of the United States.

(iii). Economies of Scale:

This is the ability to exploit size, both in financial and infrastructural and human resources in order to achieve synergy. Lower cost per unit of production is often as a result of larger size, and the consolidation of resources leads to duplication of both infrastructure and personnel, hence a lot of cost savings are derivable from such duplication; a good example is the Bank One Centre and The Chase Tower both of which was situated in the heart of Dallas and both of which served as headquarters to the companies before the merger. After the merger huge savings were made both in human resources and in capital infrastructure

(iv). Inefficient Management:

There was also the need for a competent top executive talent to take over from the incumbent Chairman and CEO of JP Morgan Chase, William Harrison, when he retire in a couple of years. This was at the moment lacking in the company, hence the merger with Bank One with the charismatic and forceful leader, Jamie Dimon at the helm of affairs could not have come at a much more better time and it was seen as an opportunity not to be missed as he was seen as a suitable replacement for the job.

Financing the merger:

Under the deal JP Morgan Chase would exchange 1.32 shares of its stock for each Bank One share, equating to $51.77 a share, or about $58 billion, based on Bank One's roughly 1.12 billion shares outstanding. William Harrison, the Chairman and CEO of JP Morgan Chase would take those roles at the merged company, to be succeeded Bank One chief Jamie Dimon, when he retires in 2006. Also included in the terms of the deal was cutting cost, revenue saving, the elimination of duplicated that 10,000 jobs. The combined company is also expected to have excess capital and subject to Bank One board approval, Bank One expects to declare an increase in its quarterly dividend to $0.45 per share. The JP Morgan Chase will still continue to operate with its name the wholesale business; and the merged company will also continue to use their individual business names JP Morgan Chase and Bank One in their respective markets and products.

Procedures and Regulatory Framework:

The coming together of JP Morgan Chase and Bank One can said to be a marriage of convenience, a coalition of the willing, a friendly union as it appeared that little or no compulsory laws and regulations relating to mergers, anti-competitive intentions and fair trade practices were violated; which would have made them answerable to the Federal Trade commission (FTC) and the Security and Exchange Commission (SEC). A press release by Bank One, dated 14th June 2004 attested to that effect that e was also the prior approval of the merger by the Federal Deposit Insurance Corporation (FDIC). Under one of its Acts This according to press release by JP Morgan Chase is a mere formality.

The Benefiting Parties:

It would not be out of place to say that in most mergers and acquisitions the management team and employees of the acquiring company benefit more than the target company, but this was not to be said of the JP Morgan Chase and Bank One merger, as it was the other way round, which further laid evidence that the union was a merger as against an acquisition. Upon ascending to the position of Chairman at JP Morgan Chase & Co, Jamie Dimon drastically changed the corporate culture which has hindered growth, as it was conservative, he made a major overhaul of the management team in JP Morgan Chase & Co., surrounded himself with his colleagues back at Bank One and made some radical changes. He introduced a radical approach of cost-reduction that he was implementing in Bank One. He decided to re-structure and re-appraise the remuneration system in relation to the under-performing managers

who he felt were overpaid and undeserved. He attached compensation structure of managers to the performance level of their divisions and to the overall performance of the company. These led to a dramatic improvement, replacing a loss of about $545 million with $3.3 billion earnings in just three years.

Conclusion:

Generally, it would not be out of place to say that the coming together of JP Morgan Chase and Bank One was a union that was desired by both parties ab initio, from the very beginning. It would also be right to say, without being hyperbolic that there was more benefit that accrued from the merger than the limitation because the evidence today is here for all to see. JP Morgan has over the years adopted a growth strategy by its numerous mergers and acquisition, which did not go down well in some quarters, but it is a strategy that has always worked for them and has already catapulting them to the top of the list in banking, in terms of asset base and market capitalization. The merger with Bank One was greeted with an air of friendliness and optimism in Wall Street, and analysts were predicting a brighter prospect ahead for the union. In the long run, the merger of JP Morgan Chase and Bank One has been a huge success as it has achieved some of the objectives it set out to accomplish right from the very onset being at par or even surpassing its competition in the form of Citigroup and Bank of America.