Chase Manhattan's Incremental Strategy: A Path to Global Investment Banking Dominance

Strategic Insights -

For years, investors have been betting on a transformational deal from Chase Manhattan, the third-largest US bank, to round out its investment banking operations with a global equities capability. However, a recent bid for Robert Fleming, the UK investment bank, would not be the deal, but rather a continuation of Chase's incremental strategy. This approach was demonstrated last year with the $1.35bn purchase of Hambrecht & Quist, a San Francisco-based investment bank specializing in high-technology companies. The H&Q deal gave Chase a foothold in high-tech companies, and a potential Fleming's deal would provide a bigger presence in European and emerging markets equities and asset management.

Key Takeaways:

  • Chase Manhattan has been searching for a merger partner to complete its investment banking operations, with a focus on acquiring a global equities capability.
  • The company's incremental strategy includes making smaller deals to build its presence in new markets, such as the H&Q purchase in high-technology companies.
  • Chase has made clear its desire to enter friendly merger talks with the three leading investment banks: Goldman Sachs, Morgan Stanley Dean Witter, and Merrill Lynch.
  • However, all three have communicated that they are not interested in merging and intend to remain independent.
  • The company has also reached out to JP Morgan, but has not received interest in a potential merger.
  • A potential deal for Robert Fleming valued at around $4bn would not preclude other deals, according to analysts.
  • Chase has successfully integrated its new California investment banking operation, with revenues at Chase H&Q running at an annual rate of $1.3bn in 2000, about double what the investment bank managed last year on its own.
  • The company has made no secret of its desire to play a greater role in European corporate restructuring and has put its focus on European markets, particularly London.

Statistics:

  • Chase Manhattan's $80bn market capitalization
  • Potential deal for Robert Fleming valued at around $4bn
  • Chase H&Q revenues at an annual rate of $1.3bn in 2000
  • Double the revenues managed by H&Q in 1999
  • 6.11% increase in Chase shares as of midday, with a gain of $5 5/8 per share to $97 5/8.

Sources:

  • Judah Kraushaar, investment analyst at Merrill Lynch, "Conceptually, if they accept that it might be impractical to pursue the really big fish that are out there a deal like this, as an alternative, would make eminent sense."
  • Michael Mayo, investment analyst at Credit Suisse First Boston, "It would not exactly be betting the bank, it would be a little bit more of a baby step to build the equity platform they ultimately would want."
  • Diane Glossman, investment analyst at Lehman Brothers, report this month, "revenues at Chase H&Q are running at an annual rate of $1.3bn in 2000 - about double what the investment bank managed last year on its own."