The merger of Chase Manhattan and Chemical Bank has created the largest bank in the United States and the fourth biggest capitalised in the world. The new bank, which will be called Chase Manhattan, will be headed by Walter Shipley, the current chairman of Chemical.
The merger, which brings together $300bn assets and $20bn of shareholders' equity, is designed to achieve annual cost savings of $1.5bn both in the US and in the two banks' world-wide operations. These include a substantial presence in the UK, with Chase employing some 2,500 and Chemical nearly 1,500.
Mr Shipley has pushed through a big cost savings programme at Chemical following its 1991 merger with Manufacturers' Hanover.
Stockmarket reaction to the merger announcement was highly positive, with Chase stock rising by $6.25 to $59.25 by lunch-time yesterday, and Chemical moving up by $4.875 to $59.25.
Diane Glossman, banking analyst at Salomon Brothers, said that the transaction "combines two companies with a great deal of overlapping operations, which will provide opportunities for savings. Ms Glossman suggested that the stated target of achieving $1.5 billion worth of savings annually within three years might even be exceeded.
Appearing together at a press conference in New York's Waldorf Astoria Hotel yesterday, the chairmen of the two banks declined to say who had approached the other with the idea of a merger.The decision to call the new bank Chase Manhattan was made because the name had better global recognition than Chemical. In spite of the name change, some analysts see the deal as a takeover of Chase by the bigger and financially stronger Chemical.
Responding to these suggestions, the current Chase chairman, Tom Labrecque, said: "This is a strategic merger - it is a merger and not a sale of the company."
Mr Labrecque said the new bank would be a market leader in virtually all its businesses. "This will be one of the few truly global financial institutions in the world."
Analysts expect that the shutting down of retail branches in the New York area would account for a large proportion of the layoffs. However, few areas of the two banks' global businesses would escape rationalisation. Asked about layoffs in Europe, Mr Shipley said the initial target world- wide was to eliminate 12,000 positions from a total of 75,000. He added that "we would expect to see some proportionality" with regard to Europe but no diminution in presence. "We see us being an even more powerful institution in Europe."
Both Chase and Chemical have a substantial presence in the UK, in areas such as investment banking, eurobond underwriting and trading, forex trading, and futures and options trading as well as traditional loan syndication businesses.
Chase has 900 staff based in London, and also operates a large transaction processing centre in Bournemouth, where 1,500 employees engage in activities such as global custody services and international money transfer for large corporate clients.
The intention is that normal staff turnover will account for many of the positions to be eliminated, but clearly there are going to be layoffs in the UK, in areas from clerical positions to senior investment bankers, as the two banks are combined.
Chemical has recent experience of rationalisation, having merged with Manufacturers' Hanover in 1991, and has exceeded its original cost savings projections. This expertise should help with tasks such as merging technology, and ensuring a smooth changeover for retail banking customers. One big area of cost savings will be in New York City's high density branch network system, where branches of Chase and Chemical, plus competitors such as Citibank and Marine Midland, are often situated close to one another.
Mr Shipley said yesterday that initial estimates for New York area were that 100 out of 480 branches might be closed. He added that all areas would continue to be served, including low-income districts.
The merger will require clearance from banking regulators, but given the sweeping consolidation currently under way within the industry the green light is expected.
Mr Shipley said: "We do not anticipate any significant anti-trust issues". The merger is expected to take place in the first quarter of 1996.