One of the Oldest Financial
Services Firms in the World.
J.P. Morgan Chase & Co. is one of the oldest financial services firms in the world. It has operations in 60 countries. It is a leader in financial services with assets of $2 trillion, and the largest market capitalization and third largest deposit base U.S. banking institution behind
Wells Fargo and Bank of America. The hedge fund unit of JPMorgan Chase is the largest hedge fund in the United States with $53.5 billion in assets as of the end of 2009. Formed in 2000, when Chase Manhattan Corporation merged with J.P. Morgan & Co., the firm serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and governmental clients.
The JP Morgan brand is used by the Investment Bank as well as the Asset Management, Private Banking, Private Wealth Management, and Treasury & Securities Services divisions. Fiduciary activity within Private Banking and Private Wealth Management is done under the aegis of JPMorgan Chase Bank, N.A.—the actual trustee. The Chase brand is used for credit card services in the United States and Canada, the bank's retail banking activities in the United States, and commercial banking.
JP Morgan Chase is one of the Big Four banks of the United States with
Bank of America,
Citigroup and Wells Fargo
JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments:
- Investment Bank
- Investment banking: advisory; debt and equity underwriting
- Market making and trading: Fixed income, Equity
- Corporate lending
- Principal investing
- Prime services
- Retail Financial Services
- Retail banking: Consumer and business banking (including Business Banking Loans);
- Consumer Lending: Loan originations and balances (including home lending, student, auto and other loans); Mortgage production and servicing;
- Card Services
- Credit cards
- Merchant acquiring
- Commercial Banking
- Middle-market banking
- Commercial term lending
- Mid-corporate banking
- Real estate banking
- Treasury & Securities Services
- Treasury Services (Global Trade, Core Cash Management, Liquidity, Import/Export Advisory)
- Worldwide Securities Services
- Asset Management
- Investment Management (including Institutional and Retail)
- Private Bank
- Private Wealth Management
- JPMorgan Securities (formerly Bear Stearns Brokerage)
- Corporate - Includes the company's private equity; One Equity Partners, Treasury and Corporate functions.
JPMorgan Chase, in its current structure, is the result of the combination of several large U.S. banking companies over the last decade including Chase Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. Going back further, its predecessors include major banking firms among which are Chemical Bank, Manufacturers Hanover, First Chicago Bank, National Bank of Detroit, Texas Commerce Bank, Providian Financial and Great Western Bank.
Chemical Banking Corporation
The New York Chemical Manufacturing Company was founded in 1823 as a maker of various chemicals. In 1824, the company amended its charter to perform banking activities and created the Chemical Bank of New York. After 1851, the bank was separated from its parent and grew organically and through a series of mergers, most notably with Corn Exchange Bank in 1954, Texas Commerce Bank (a large bank in Texas) in 1986, and Manufacturer's Hanover Trust Company in 1991 (the first major bank merger "among equals"). In the 1980s and early 1990s, Chemical emerged as one of the leaders in the financing of leveraged buyout transactions. In 1984, Chemical launched Chemical Venture Partners to invest in private equity transactions alongside various financial sponsors. By the late 1980s, Chemical developed its reputation for financing buyouts, building a syndicated leveraged finance business and related advisory businesses under the auspices of pioneering investment banker, Jimmy Lee. At many points throughout this history, Chemical Bank was the largest bank in the United States (either in terms of assets or deposit market share).
In 1996, Chemical Bank acquired the Chase Manhattan Corporation taking the more prominent Chase name. In 2000, the combined company acquired J.P. Morgan & Co. and combined the two names to form what is today JPMorgan Chase & Co. JPMorgan Chase retains Chemical Bank's headquarters at 270 Park Avenue and stock price history.
Chase Manhattan Bank
The Chase Manhattan Bank was formed upon the 1931 purchase of Chase National Bank (established in 1877) by the Bank of the Manhattan Company (established in 1799), the company's oldest predecessor institution. The Bank of the Manhattan Company was the creation of Aaron Burr, who transformed The Manhattan Company from a water carrier into a bank.
Led by David Rockefeller during the 1970s and the 1980s, Chase Manhattan emerged as one of the largest and most prestigious banking concerns, with leadership positions in syndicated lending, treasury and securities services, credit cards, mortgages, and retail financial services. Weakened by the real estate collapse in the early 1990s, it was acquired by Chemical Bank in 1996 retaining the prominent Chase name. Prior to its notable merger with J.P. Morgan & Co., the New Chase expanded the investment and asset management groups through two acquisitions. In 1999, it acquired San Francisco-based Hambrecht & Quist for $1.35 billion. In April 2000, UK-based Robert Fleming & Co. was sold to the new Chase Manhattan Bank for $7.7 billion.
According to page 114 of An Empire of Wealth by John Steele Gordon, the origin of this strand of JPMorgan Chase's history runs as follows:
At the turn of the nineteenth century, obtaining a bank charter required an act of the state legislature. This of course injected a powerful element of politics into the process and invited what today would be called corruption but then was regarded as business as usual. Hamilton's political enemy—and eventual murderer—Aaron Burr was able to create a bank by sneaking a clause into a charter for a company, called the Manhattan Company, to provide clean water to New York City. The innocuous-looking clause allowed the company to invest surplus capital in any lawful enterprise. Within six months of the company's creation, and long before it had laid a single section of water pipe, the company opened a bank, the Bank of the Manhattan Company. Still in existence, it is today J.P.Morgan Chase, the second largest bank in the United States.
J.P. Morgan & Company
The heritage of the House of Morgan traces its roots to the partnership of Drexel, Morgan & Co., which in 1895 was renamed J.P. Morgan & Co. (see also: J. Pierpont Morgan). Arguably the most influential financial institution of its era, J.P. Morgan & Co. financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world's first billion-dollar corporation. In 1895, J.P. Morgan & Co. supplied the United States government with $62 million in gold to float a bond issue and restore the treasury surplus of $100 million. In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions that made it the dominant railroad transporter in New England. Although his name was big, Morgan owned only 19% of Morgan assets. The rest was owned by the Rothschild family following a series of bailouts and rescues attributed by some to Morgan's stubborn will and seemingly "non-existent" investment savvy.
Built in 1914, 23 Wall Street was known as the "House of Morgan," and for decades the bank's headquarters was the most important address in American finance. At noon, on September 16, 1920, a terrorist bomb exploded in front of the bank, injuring 400 and killing 38. Shortly before the bomb went off, a warning note was placed in a mailbox at the corner of Cedar Street and Broadway. The warning read: "Remember we will not tolerate any longer. Free the political prisoners or it will be sure death for all of you. American Anarchists Fighters." While theories abound about who was behind the Wall Street bombing and why they did it, after 20 years of investigation the FBI rendered the case inactive without ever finding the perpetrators.
In August 1914, Henry P. Davison, a Morgan partner, traveled to the UK and made a deal with the Bank of England to make J.P. Morgan & Co. the monopoly underwriter of war bonds for the UK and France. The Bank of England became a "fiscal agent" of J.P. Morgan & Co., and vice-versa. The company also invested in the suppliers of war equipment to Britain and France. Thus, the company profited from the financing and purchasing activities of the two European governments.
In the 1930s, all of J.P. Morgan & Co. along with all integrated banking businesses in the United States, was required by the provisions of the Glass-Steagall Act to separate its investment banking from its commercial banking operations. J.P. Morgan & Co. chose to operate as a commercial bank, because at the time commercial lending was perceived as more profitable and prestigious. Additionally, many within J.P. Morgan believed that a change in political climate would eventually allow the company to resume its securities businesses but it would be nearly impossible to reconstitute the bank if it were disassembled.
In 1935, after being barred from securities business for over a year, the heads of J.P. Morgan spun off its investment-banking operations. Led by J.P. Morgan partners, Henry S. Morgan (son of Jack Morgan and grandson of J. Pierpont Morgan) and Harold Stanley, Morgan Stanley was founded on September 16, 1935 with $6.6 million of nonvoting preferred stock from J.P. Morgan partners. In order to bolster its position, in 1959, J.P. Morgan merged with the Guaranty Trust Company of New York to form the Morgan Guaranty Trust Company. The bank would continue to operate as Morgan Guaranty Trust through the 1980s, before beginning to migrate back toward the use of the J.P. Morgan brand. In 1984, the group finally purchased the Purdue National Corporation of Lafayette Indiana, uniting a history between the two figures of Salmon Portland Chase and John Purdue. In 1988, the company once again began operating exclusively as J.P. Morgan & Co.
Bank One Corporation
In 2004, JPMorgan Chase merged with Bank One Corp., bringing on board current chairman and CEO Jamie Dimon as president and COO and designating him as CEO William B. Harrison, Jr.'s successor. Dimon's pay was pegged at 90% of Harrison's. Dimon quickly made his influence felt by embarking on a cost-cutting strategy and replaced former JPMorgan Chase executives in key positions with Bank One executives—many of whom were with Dimon at Citigroup. Dimon became CEO in January 2006 and Chairman in December 2006.
Bank One Corporation was formed upon the 1998 merger between Bank One of Columbus, Ohio and First Chicago NBD. These two large banking companies had themselves been created through the merger of many banks. This merger was largely considered a failure until Jamie Dimon—recently ousted as President of Citigroup—took over and reformed the new firm's practices—especially its disastrous technology mishmash inherited from the many mergers prior to this one. Mr. Dimon effected more than sufficient changes to make Bank One Corporation a viable merger partner for JPMorgan Chase.
Bank One Corporation traced its roots to First Bancgroup of Ohio, founded as a holding company for City National Bank of Columbus, Ohio and several other banks in that state, all of which were renamed "Bank One" when the holding company was renamed Bank One Corporation. With the beginning of interstate banking they spread into other states, always renaming acquired banks "Bank One", though for a long time they resisted combining them into one bank. After the NBD merger, adverse financial results led to the departure of CIO John B. McCoy, whose father and grandfather had headed Banc One and predecessors. Jamie Dimon, a former key executive of Citigroup, was brought in to head the company. JPMorgan Chase completed the acquisition of Bank One in Q3 2004.
At the end of 2007, Bear Stearns & Co. Inc. was the fifth largest investment bank in the United States but its market capitalization had deteriorated through the second half of 2007. On Friday, March 14, 2008 Bear Stearns lost 47% of its equity market value to close at $30.00 per share as rumors emerged that clients were withdrawing capital from the bank. Over the following weekend it emerged that Bear Stearns might prove insolvent and on or around March 15, 2008 the Federal Reserve engineered a deal to prevent a wider systemic crisis from the collapse of Bear Stearns.
On March 16, 2008, after a weekend of intense negotiations between JPMorgan, Bear, and the federal government, JPMorgan Chase announced that it had plans to acquire Bear Stearns in a stock swap worth $2.00 per share or $240 million pending shareholder approval scheduled within 90 days. In the interim, JPMorgan Chase agreed to guarantee all Bear Stearns trades and business process flows. Two days later, on March 18, 2008, JPMorgan Chase formally announced the acquisition of Bear Stearns for $236 million. The stock swap agreement was signed in the late-night hours of March 18, 2008, with JPMorgan agreeing to exchange 0.05473 of each of its shares upon closure of the merger for one Bear share, valuing the Bear shares at $2 each.
On March 24, 2008, after considerable public discontent by Bear Stearns shareholders over the low acquisition price threatened the deal's closure, a revised offer was announced at approximately $10 per share. Under the revised terms, JPMorgan also immediately acquired a 39.5% stake in Bear Stearns (using newly issued shares) at the new offer price and gained a commitment from the board (representing another 10% of the share capital) that its members would vote in favor of the new deal. With sufficient commitments thus in hand to ensure a successful shareholder vote, the merger was completed on June 2, 2008.
On September 25, 2008, JPMorgan Chase bought most of the banking operations of Washington Mutual from the receivership of the FDIC. That night, the Office of Thrift Supervision, in what was by far the largest bank failure in American history, had seized Washington Mutual Bank and placed it into receivership. The FDIC sold the bank's assets, secured debt obligations and deposits to JPMorgan Chase & Co for $1.836 billion, which re-opened the bank the following day. As a result of the takeover, Washington Mutual shareholders lost all their equity.
JPMorgan Chase raised $10 billion in a stock sale to cover writedowns and losses after taking on deposits and branches of Washington Mutual. Through the acquisition, JPMorgan now owns the former accounts of Providian Financial, a credit card issuer WaMu acquired in 2005. The company announced plans to complete the rebranding of Washington Mutual branches to Chase by late 2009.
Chief executive Alan H. Fishman was flying from New York to Seattle on the day the bank was closed, and eventually received a $7.5 million sign-on bonus and cash severance of $11.6 million after being CEO for 17 days.
Other recent acquisitions
In 2006, JPMorgan Chase purchased Collegiate Funding Services, a portfolio company of private equity firm Lightyear Capital, for $663 million. CFS was used as the foundation for the Chase Student Loans, previously known as Chase Education Finance.
In April, 2006, JPMorgan Chase announced it would swap its corporate trust unit for The Bank of New York Co.'s retail and small business banking network. The swap valued The Bank of New York business at $3.1 billion and JPMorgan's trust unit at $2.8 billion and gave Chase access to 338 additional branches and 700,000 new customers in New York, New Jersey, and Indiana.
In March, 2008, JPMorgan acquired the UK-based carbon offsetting company ClimateCare.
In November, 2009, JPMorgan announced it would acquire the balance of JPMorgan Cazenove, an advisory and underwriting joint venture established in 2004 with the Cazenove Group, for GBP1 billion
Real Estate Finance