The planned merger of JPMorgan Chase and Bank One Corp. would likely create an ABS powerhouse, with a captive credit card origination unit rivaling Citigroup, which was 2003's lead ABS underwriter by nearly $10 billion. JP/One's underwriting volume could also benefit from massive in-house home-equity and auto-origination platforms.
If judging by numbers from 2003, the combined JP/One entity would have hit nearly $80 billion, topping Citigroup's $65 billion. That figure, however, disregards some overlapping banking relationships, particularly in auto loans where both BOCM and JPMorgan are in the selling group for each of the Big Three, plus American Honda Finance and Toyota Motor Co. Also, both have led transactions for Bombardier Capital and Harley Davidson.
The ABS sectors with no overlap include time-share ABS, where BOCM is the leading underwriter, and foreign MBS, where JPMorgan has a strong presence.
Those working at the respective firms' issuer units stand to gain. Bank One's position as a leading credit card issuer as well as its Midwest presence as a prime auto lender fit well with Chase's operations. In addition, there are mutually beneficial relationships, such as Chase's loan channeling agreement with AmeriCredit Corp., in which Chase offers AmeriCredit loan applications from slightly under-qualified borrowers to the Fort Worth non-prime lender.
Word of the $58 billion merger broke late last Wednesday, at which point analysts from rival firms cited the commercial and investment banking synergies, on par with other mergers, such as Bank of America/ NationsBank and Salomon Smith Barney/Citibank.
"It seems like a logical move for JPMorgan - they get scale in retail banking and credit cards, both of which they lacked," said Kathy Shanley, senior bond analyst for Gimme Credit, an independent research firm aimed at institutional investors. "Basically, they are acknowledging the Bank of America way is the way to go."
In fact, one clairvoyant equity researcher, Lehman Brother's Brock Vandervliet, envisioned the potential of such a merger less than one week prior to the announcement last Wednesday, in his research piece entitled "JPM/ONE: 1+1=3." In the piece, he sees the commercial banking and consumer-finance strengths of Bank One as complementing the investment banking and asset-management prowess of JPMorgan.
Both banks are top-tier auto loan and credit card ABS issuers. With a combined $130 billion portfolio, the new entity will be the No. 2 credit card issuer behind Citibank N.A., as well as a leading middle- market lender.
On the ABCP side, Bank One has been considerably more active than JPMorgan, currently running five conduits - including Falcon Asset Securitization Corp. and Jupiter Funding Corp.; these have total outstandings of about $34 billion as of last August, according to ABCP Query, an analytical product of Moody's Investors Service.
JPMorgan's administered conduits - Asset Portfolio Funding Corp., Delaware Funding Corp., and Park Avenue Receivables Corp. - had a combined $11.5 billion outstanding as of last August.
According to a source in the market, the two sets of programs are viewed as complementary, with Bank One leaning more toward vanilla consumer assets, credit cards, auto loans and trade receivables. JPMorgan's conduit lending activity, meanwhile, tends to finance more esoteric, one-off transactions, often tied to acquisition finance.
Casualties of war
Although most of the Street applauds the planned mega-merger, ABS pros at both firms expressed concerns mostly about their future employment prospects rather than the inevitable culture clash and bloodshed that occur in such combinations.
As for securitization platforms, any synergies will be realized on the issuer side of the equation, where Bank One's Midwest presence as a consumer finance company dovetails with Chase's East Coast foothold. Dangerous overlap in personnel exists in the capital markets, particularly banking, research and trading.
Unfortunately, the victims likely will be from Banc One Capital Markets Inc., industry sources said. "There is a lot of overlap between those two, especially in research and banking, and the JPMorgan guys will probably win out," a recruiter said. "It's all political."
ABS pros at JPMorgan, meanwhile, were less than thrilled about navigating another merger, recalling less-than-fond memories of the JPMorgan/Chase Manhattan marriage ceremony. Despite the eventual success of the newly formed asset-backed group - with post-merger JPMorgan taking the No. 1 spot in ABS underwriting in 2002 - layoffs and defections were plenty.
Both JPMorgan and Banc One have fully staffed syndicate/trading and research strategy operations, two areas that would feel the rumble, particularly if the current Banc One employees aren't willing to relocate to JPMorgan's New York headquarters. "If people at Banc One refuse to assimilate into JPMorgan, they may find themselves on the outside looking in," the recruiter said.