After Corestates Deal, J.p. Morgan Is A Bargain

Posted: September 17, 2000

Big corporate mergers are costly and disruptive, and rarely work as advertised. So it's not surprising that investors kicked down Chase Manhattan Corp. stock from $57 to $49 last week after the bank agreed to pay $30 billion for J.P. Morgan & Co.

Yet not long ago, banks were paying even richer prices.

In April 1998, First Union Corp. paid just under $20 billion for Philadelphia's CoreStates Financial Corp.

Morgan's banking arm is four times as big as CoreStates' was; its investment business is vastly larger; its brand is far better known; and its profits are triple what Core- States used to earn.

But Chase is paying just 50 percent more for Morgan than First Union paid for CoreStates, a far smaller company.

The CoreStates sale now looks like the peak of the market: First Union paid nearly six times book value for CoreStates - double what Morgan fetched.

"It was an outstanding price," said former CoreStates chairman Terrence A. Larsen, the deal's chief negotiator and one of its major beneficiaries.

Larsen, who returned to his Chester County home after an extended trip to Europe last week, said he and his family were enjoying his retirement.

* At least one of Morgan's Philadelphia customers, FastShip Inc., is cheering the Chase deal, according to its chairman, Roland K. Bullard.

Sure, Bullard, a former Fidelity and Philadelphia National Bank executive, misses the days when big Philadelphia banks funded big Philadelphia businesses. But that kind of banking is gone.

Now Bullard says he's looking forward to watching Chase's big sales network sell the securities he hopes Morgan will issue to finance FastShip's planned global shipping network.

*, the Wayne company that's trying to persuade big investors to hire money managers online, has raised $52 million in new venture-capital funding - including a vote of confidence from the $172 billion-asset California Public Employees' Retirement System (CalPERS).

CalPERS is investing $10 million, and San Francisco-based Thomas Weisel Capital Partners is putting in $15 million. Merrill Lynch & Co. and Mellon Bank's venture-capital affiliate are raising the balance, along with InvestorForce's original backer, Wayne-based Internet Capital Group.

Is CalPERS ready to eat its own cooking? Will it use Investor Force to find its own investment managers?

"Potentially, yes," said CalPers spokesman Brad Pacheco. "Our alternative-investments staff is excited about it. InvestorForce is coming out here next week to show what they can do for us."

Also last week, InvestorForce bought, an online hedge-fund service, for an undisclosed sum. Founder Jeffrey Tarrant will be leaving, but other Altvest employees will remain at the company's offices in Newark, Del., and New York, said InvestorForce president Jim Morrissey.

* The stock-trading business is consolidating in a hurry.

Goldman Sachs is paying more than $6 billion for the huge, highly profitable stock- and options-trading partnership of Spear, Leeds & Kellogg.

Shares of Knight Trading Group, the leading purveyor of Nasdaq stocks, are rising because of takeover rumors.

Will Bala Cynwyd's Susquehanna Investments go the same route?

Could an independent Susquehanna remain one of the nation's biggest stock-options and municipal-bond dealers, and a high-volume program trader on the New York Stock Exchange, once its rivals gain access to Wall Street's biggest capital fountains?

People close to the eight partners who run Susquehanna say a deal can't be ruled out. But they also say Susquehanna stands to benefit if it becomes the last big independent firm - since it's an open question whether big Wall Street investment houses will want to trade through companies controlled by their rivals.

* Wilmington Trust Corp. has been selling or shutting commercial and retail branches in Delaware and Maryland and in Delaware County as it shifts from retail banking to investments.

But last week the century-old bank opened new offices in West Chester and Doylestown, where the bank has been making more business loans, and in the British tax-shelter colonies of Jersey and the Cayman Islands, where it hopes to expand its long-established business of helping rich people and corporations avoid taxes.

That didn't stop Acadia Research Group, a Villanova hedge fund, from cutting the stock from "buy" to "hold." Analyst Darren Tymchyshyn said he was reacting mostly to a recent rise in the stock's price, to the mid-$50s, which is about what Acadia figures it's worth.

"However, we would note that revenues have been stagnant over the past four quarters," Tymchyshyn added.

He said Wilmington Trust remained primarily a commercial bank - and would have to boost the percentage of sales from its investment businesses before many investors would bid it up to the kind of premium stock price enjoyed by larger rivals like Mellon Bank Corp.

Joseph N. DiStefano can be reached at 215-854-5957 or

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