J.P. Morgan Chase & Co. once again finds itself at the beginning of a massive integration project: grafting on the systems, people, and brands it stands to inherit from Bank One Corp.
Of course, many issues have yet to be resolved, namely those involving the technology and systems that would survive and the resolution of a philosophical difference between the two chief executives over outsourcing.
Yet the CEOs, William B. Harrison Jr. and James Dimon, told employees and analysts Thursday that they are among the most experienced acquirers in the business and plan to apply lessons they learned from past deals.
"We have done this many times before, and we will phase it in intelligently but rapidly," Mr. Dimon told the audience.
In particular, Mr. Harrison, the architect of J.P. Morgan Chase, may be under the spotlight. In the summer of 1999 he became the CEO of the large commercial bank Chase Manhattan Corp. and had ambitions to become a global Wall Street powerhouse. He crafted a series of acquisitions culminating in the 2000 deal for J.P. Morgan & Co. that ushered in two years of cultural battles and job cutting.
At a presentation Thursday morning in Manhattan, he indicated he would do several things differently this time. For starters, he said, no one is getting a special deal-related bonus. Special compensation after the Chase Manhattan-J.P. Morgan deal rankled investors; Mr. Harrison received $10 million while the value of his company's stock plummeted.
"I know that got some consternation the last time we did a deal," he reassured investors on Thursday.
Gone, too, is the idea of having co-heads run the various business lines. That was one of the features of the Chase Manhattan-J.P. Morgan deal that led to turf wars.
In one respect, Mr. Harrison is already enjoying an advantage he did not have in his last deal - and, for that matter, one that Bank of America Corp. has not enjoyed in its deal for FleetBoston Financial Corp. J.P. Morgan Chase's shares edged down just slightly Thursday. That lack of movement reflects Wall Street's comfort with the strategic fit and the relatively modest premium embedded in the deal's $58 billion price tag.
Of course, investors recall that Mr. Harrison's last deal brought a whole new set of profitability problems to Chase Manhattan. It left his company heavily exposed to businesses poised for a cyclical downfall - venture capital, trading, lending - as well as a heavy concentration in one client about to implode, Enron Corp.
He told analysts Thursday not to confuse the outcome with the execution when thinking about his last deal. "That was a good integration, and this will be a good one. As an execution matter, we should have less of a challenge."
Mr. Dimon is certainly no newcomer to difficult integrations. His former boss, Sanford I. Weill, built a tiny Baltimore lending operation into the colossus Citigroup Inc. through a string of acquisitions, including Salomon Brothers and Citicorp. Mr. Dimon's ultimate ouster from Citigroup was linked in part to the difficulty of meshing Salomon Smith Barney with Citi's corporate bank.
Bank One, too, grew over the years through successively larger acquisitions with mixed results, all before Mr. Dimon's arrival. The 1997 purchase and subsequent integration - or lack thereof - of the Delaware credit card company First USA Inc. tripped up Bank One's management.
Mr. Dimon was brought in to clean house in March 2000. He cut costs and moved quickly to put the bank on a common computer system.
This time around, "if they don't do a good job integrating, then some dark horse will catch them," said Andrew Senchak, the head of investment banking at Keefe, Bruyette & Woods Inc. "The easy part is getting the deal done. It will come down to leadership and whether everyone will fall in line" behind Mr. Dimon, who is to become J.P. Morgan Chase's president and ultimately succeed Mr. Harrison as the CEO in 2006.
What is the same this time around is how swiftly Mr. Harrison and Mr. Dimon have identified the upper echelon of management. And here, observers say, there appear to be more cultural similarities than differences.
Many of the managers of the two companies already know each other. For example, Heidi Miller, Bank One's chief financial officer, sits with Mr. Harrison on the board of the pharmaceutical giant Merck & Co. Inc. Mr. Dimon and his retail banking chief, Charles Scharf, would be reunited with a former Smith Barney colleague, Steven D. Black, who is now J.P. Morgan Chase's head of equities.
Analysts and other observers say the fact that J.P. Morgan Chase is more of an investment banking firm and Bank One is more of a retail bank also bodes well for an easy integration. There are few branch overlaps, except in Texas, where J.P. Morgan Chase would have a 22% deposit share and could face divestitures.
The deal would combine two very large corporate lending, credit card, and mutual fund operations, as well as nationwide operating systems, and those areas appear to be where the bulk of the cuts are targeted.
The companies say $2.2 billion of cost savings would come from wholesale and credit card operations as well as administrative and staff functions. About $700 million of the savings are to come from wholesale operations, another $800 million from credit cards and retail banking, and $700 million from corporate and other staff functions.
Ruchi Madan, a Smith Barney analyst, says credit card expenses alone can be slashed by $1 billion, and another $200 million to $250 million can be taken out of the investment management unit. Because of overlap, the entire expense base of Bank One's large corporate lending and credit area could be eliminated, resulting in about $400 million of savings, she wrote in a research note.
"Over time it's possible that the Jamie Dimon expense culture will get reflected throughout the corporation, which could imply even more meaningful savings," Ms. Madan wrote.
