Orders issued under Bank Holding Company Act

Federal Reserve Bulletin, Summer, 2004 by Robert DeV. Frierson

Orders Issued Under Section 3 of the Bank Holding Company Act

JP Morgan Chase & Co. New York, New York

Order Approving the Merger of Financial Holding Companies

JP Morgan Chase & Co. ("Morgan Chase"), a financial holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [section] 1842) to merge with Bank One Corporation (1) and to acquire Bank One Corporation's subsidiary banks, including its lead subsidiary bank, Bank One, National Association, also in Chicago ("Bank One"). (2)

JP Morgan, with total consolidated assets of approximately $771 billion, is the third largest insured depository organization in the United States, (3) controlling deposits of $197.2 billion, which represents approximately 3.8 percent of total deposits of insured depository institutions in the United States. (4) JP Morgan operates insured depository institutions in California, Connecticut, Delaware, Florida, New Jersey, New York, and Texas 5 and engages nationwide in numerous nonbanking activities that are permissible under the BHC Act.

Bank One Corporation, with total consolidated assets of approximately $327 billion, is the sixth largest depository organization in the United States, controlling deposits of approximately $147.4 billion, which represents approximately 2.8 percent of total deposits of insured depository institutions in the United States. Bank One Corporation operates depository institutions in Arizona, Colorado, Delaware, Florida, Illinois, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah, West Virginia, and Wisconsin. It also engages in a broad range of permissible nonbanking activities in the United States and abroad. (6)

On consummation of the proposal, JP Morgan would become the second largest insured depository organization in the United States, with total consolidated assets of approximately $1.1 trillion and total deposits of $344.6 billion, representing approximately 6.7 percent of total deposits of insured depository institutions in the United States.

Factors Governing Board Review of the Transaction

The BHC Act enumerates the factors the Board must consider when reviewing the merger of bank holding companies or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the convenience and needs of the communities to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [section] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; and the availability of information needed to determine and enforce compliance with the BHC Act. In cases involving interstate bank acquisitions, the Board also must consider the concentration of deposits nationwide and in certain individual states, as well as compliance with other provisions of the Riegle-Neal Interstate Banking and Branching Efciency Act of 1994 ("Riegle-Neal Act"). (7)

Public Comment on the Proposal

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (69 Federal Register 7,748 and 17,664 (2004)), and the time for filing comments has expired. Because of the extensive public interest in the proposal, the Board held public meetings in New York and Chicago and provided an extended comment period of 81 days to allow interested persons an opportunity to present oral or written testimony on the factors that the Board must review under the BHC Act. (8) More than 150 people testified at the public meetings, many of whom also submitted written comments. Approximately 290 additional commenters submitted written comments.

A large number of commenters supported the proposal and commended JP Morgan and Bank One Corporation for their commitment to local communities and for their leadership in community development activities. These commenters praised both institutions' records of providing affordable mortgage loans, investments, grants and loans in support of economic and community revitalization projects, charitable contributions in local communities, and other community services. Many of the commenters also praised JP Morgan's nationwide $800 billion, ten-year community economic development plan ("Community Development Initiative") that was announced at the public meeting in New York.

Many commenters, however, expressed concern about the proposal or opposed the acquisition. Most of these comments alleged general or specific deficiencies in the record of performance of JP Morgan or Bank One Corporation in helping to meet the credit needs of their communities under the CRA. Several commenters believed that the merger would reduce competition for banking services, substantially increase concentration in the banking industry, and result in the loss of local control over lending and investment decisions. Many commenters were generally troubled by the size of the acquisition and alleged deficiencies in the Community Development Initiative. Some commenters expressing concerns had enjoyed positive experiences with either JP Morgan or Bank One Corporation and were concerned about the effect of the merger on their relationships in the future.