Chase Manhattan's pending buyout of J.P. Morgan creates a $668 billion financial behemoth that will rank thirdamong U.S. financial institutions, just behind Citigroup and Bank of America.
The acquisition strengthens Chase in the asset management and investment banking areas, where the two banks overlap the most. Chase and Morgan expect incremental net revenues of about $400 million from the combined company-which will take the name J.P. Morgan Chase-and cost savings of about $1.5 billion.
As to what the merger might mean for IT initiatives, Chase had already targeted $2.6 billion toward technology spending this year, while Morgan had allocated at least $1.1 billion, according to TowerGroup. "From a technology perspective, such mergers create additional pools of discretionary spending...you find efficiencies, synergies between the existing IT infrastructures, which creates extra resources that the businesses can use...to spin new technologies," said Rajeev Agarwal, research director of wholesale banking services at TowerGroup.
Both banks have used the Internet to draw new customers and enhance e-commerce. Chase, for example, recently licensed WebLogic application servers from BEA Systems, San Jose, Calif., to provide new services to its online clients. It also partnered with several vendors last year to develop second-generation Web banking sites that bolster its Internet delivery systems. With Morgan OnLine, J.P. Morgan used the Internet to extend its private-banking service, traditionally the domain of multimillionaire clients, to clients with accounts beginning as low as $10,000.
Chase.com and LabMorgan-the two banks' e-finance units that incubate and invest in Internet start-ups while also developing each bank's online potential-will combine in the new company. Chase.com's Denis O'Leary and LabMorgan's Nicolas Rohatyn will share the leadership and report to Chase's David Coulter, head of retail banking and Internet initiatives.
Chase.com invested in Intelysis, a provider of electronic-procurement software and also took a stake in TradeOut.com, an online exchange where businesses buy and sell surplus inventory and inactive assets; in HomeAdvisor Technologies, Microsoft's automated home-loan service; and in ChaseShop.com, an e-commerce joint venture with ShopNow.com. It has also invested in Spectrum, a bank-owned EBPP service; and Identrus.
LabMorgan took over many big-money projects that originated in other J.P. Morgan units, such as Cygnifi, an online derivatives firm built in partnership with Sybase, NumeriX and Bridge Information Systems, and Horizon, a Web-based risk-management service. It has also spawned such companies as Arcordia, which provides derivatives management services, and SynDirect Wireless, which allows bond trades to take place over Palm Pilots and wireless phones.
"The two institutions combining will create some synergies in the business-to-business area," said Agarwal, who believes the merger might bring new opportunities for Chase's large number of small-business clients."The biggest challenge this merger will face is deciding which systems will survive, and which entity will provide it."