Chase-Bank One Merger Creates a Transactions Powerhouse

The merger of banking powerhouses J.P Morgan Chase & Co. and Bank One Corp., announced late yesterday, would create the nation's second largest credit card issuer as measured by credit outstanding, the banks' chief executives said this morning in a meeting with analysts. The combined bank would boast 95 million cards issued and $125 billion in card loans, second only to the $131 billion in outstandings claimed by Citigroup, based on the credit card numbers posted by the two banks currently. J.P. Morgan Chase, New York, which is acquiring Chicago-based Bank One in a deal valued at $58 billion, is the smaller of the two issuers, with $51 billion in outstanding credit card debt. Bank One currently ranks third, behind MBNA as well as Citi, with $74 billion. In their presentation to analysts, William B. Harrison, chairman and chief executive of J.P. Morgan Chase, and James Dimon, Bank One's chairman and chief executive, said the merger would produce $800 million in cost savings in cards and retail banking operations over the next three years, or more than one-third of the total $2.2 billion in expected economies. Dimon in particular cited the combined entity's extensive branch network and favorable cost of funds as major advantages for the new banking company as a card issuer. The combined company, which will do business as J.P. Morgan Chase but will maintain a retail banking headquarters in Chicago, will have 2,300 branches in 17 states. The two bank holding companies also own major payment-processing companies handling card transactions for merchants. Paymentech L.P., which Bank One owns in conjunction with First Data Corp., processes 4.2 billion transactions annually. First Data also owns part of J.P. Morgan Chase's Chase Merchant Services LLC, which handles 2.9 billion transactions annually. In a statement released today, Michael P. Duffy, chief executive of Paymentech, said: “It would be premature for Paymentech to comment on the details of the acquisition. It is too soon to speculate how the agreement will impact our company, but I can assure you that as one of North America's largest payment processors, Paymentech is a healthy, profitable company, and we will continue to conduct business as usual.” Paymentech refused to comment beyond the statement. Chase Merchant Services did not return calls seeking comment. Harrison and Dimon based many of the numbers in their presentation on an assumption that the merger would close by the middle of the year. The blockbuster deal follows closely last October's announcement that Bank of America would merge with FleetBoston Corp. in a transaction valued at more than $40 billion.