NEW YORK - Banking powerhouses Chase Manhattan and J.P. Morgan agreed to a $35.2 billion merger Wednesday in a deal that demonstrates how venerable institutions are joining forces to meet the challenges of an increasingly global economy.
The new company, J.P. Morgan Chase & Co., will not only combine the immense assets of both companies, it will also unite the formidable histories of both institutions, whose forebears include J.P. Morgan, Alexander Hamilton and David Rockefeller.
''Nothing is sacred and that's how it should be. No one should be resting on their laurels and, in fact, that is the essence of capitalism. That's how J.P. Morgan built his business,'' said Morton Pierce, head of the mergers and acquisitions group at Dewey Ballantine, a New York advisory firm.
J.P. Morgan's roots are traced to a London merchant banking firm established in 1838 by American businessman George Peabody. Junius P. Morgan became Peabody's partner 16 years later.
Junius' son, J. Pierpont Morgan, established a U.S. outpost for his father's firm and went on to become one of the financial titans of U.S. history. The firm eventually helped finance the rail, steel, mining and utilities industries in the United States and led a rescue of the financial system in 1907 following a panic on Wall Street. The incident prompted the creation of the Federal Reserve in 1913.
Chase Manhattan's origins go back even further, beginning in 1799 when the Manhattan Co. was established with the help of Alexander Hamilton and Aaron Burr to help improve New York's water supply and fight a yellow fever epidemic. A successor company eventually combined with Chase National Bank in the mid-1950s to form Chase Manhattan Bank, which became an international powerhouse under the leadership of David Rockefeller. It later merged with Chemical Bank, which had earlier combined with Manufacturers Hanover.
The combined firm will have about $668 billion in assets, rivaling Bank of America Corp., with about $679 billion in assets, as the second largest bank holding company in the United States. It will still trail Citigroup, which had $791 billion as of June 30.
''We saw a great opportunity to capitalize on the complementary momentum of both firms,'' said J.P. Morgan's chairman and chief executive, Douglas Warner, who will become chairman of the merged company.
Consolidation has swept the financial services industry in recent years, and the pace appears to have picked up considerably following the partial repeal last year of the Depression-era Glass-Steagall Act, which separated the services provided by commercial banks, investment banks and insurance companies.
Last month, Credit Suisse Group agreed to pay $11.5 billion in cash and stock for Donaldson, Lufkin & Jenrette Inc. Earlier this summer, Swiss banking giant UBS AG agreed to pay $11 billion for the Paine Webber Group Inc.
Those deals pale in comparison to this week's merger.
After climbing for weeks on rumors that the firm was a takeover target, J.P. Morgan's shares fell $4.19 on Wednesday to $181.25 in trading on the New York Stock Exchange. Chase Manhattan fell $1.31 to $51.19, dropping the initial value of the deal from about $36 billion.
Nevertheless, analysts agree that the two companies match up well, given their complementary array of services.
''The fundamental driver here is that as financial services become increasingly globalized, it is important to have major product offerings across a range of financial services,'' said Peter Burns, managing director of the Financial Institutions Center at the Wharton School.
The deal, which must still be approved by shareholders and regulators, will combine the nation's third- and fifth-largest bank holding companies. Chase Manhattan had $396 billion in assets as of June 30; J.P. Morgan is fifth with $266.3 billion.
The new structure calls for investment banking, wealth management, institutional asset management and private equity services to operate under the J.P. Morgan name. The retail business will be known as Chase and include credit card, mortgage banking and regional consumer banking in the New York area and Texas.
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