New Behemoth

19 January 2004


JP Morgan Chase to Buy Bank One

The concentration of wealth and power into a few hands is almost always a bad idea. On Wall Street, mergers and acquisitions usually result in bigger, less responsive entities or in bad marriages that have to be demerged a few years later. In the case of JP Morgan Chase's purchase of Bank One, there's actually a chance that it will be a good thing for the consumer.

If approved by those whose approval must be secured the resulting bank (which will still be called JP Morgan Chase) will be the second biggest in the US, after Citigroup. It will be worth $1.1 trillion and have 2,300 branches in 17 states (yes, European readers, it will not be everywhere in the country -- America is still overbanked). Importantly, though, the only place where the two banks have much in the way of head-to-head competition is Texas. This means that apart from Texas, there is no reason for the merger to result in the closing or consolidation of branches.

Nor is there much overlap in the banking demographic. JP Morgan Chase has positioned itself as a rather blue blood, white shoe bank. Bank One is much more democratic in its style. While this is largely a non-sense in actual banking terms, the customer base is different.

Where there could be problems for the consumer is in credit cards, where Bank One is the second largest issuer and Chase is fifth. The new bank will be the largest by outstanding balances and second when measured in terms of credit cards issued. Less competition, possible rising interest rates, and declining credit quality among broad segments of American consumers could push rates up or even cut some people off from credit completely.

That said, the merger will create an entity more capable of going toe-to-to with Citigroup. And this is a paradox not fully appreciated in Washington or Main Street. If the merger reduces the number of competitors but in so doing renders the remaining competition more effective, the consolidation can actually improve conditions for the consumer. Only time will tell if this merger measures up, but on the face of it, there's every chance it will.

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