Jamie Dimon, the chief executive of Bank One and a former protege of Weill, said recently that he was not looking at investment banks. An acquisition of a consumer-focused bank "makes the most sense," Dimon said in a conference call for clients of Prudential Securities.
Banks that acquired investment banks in recent years are re-evaluating how to balance their lending and investment banking businesses.
The theory behind these deals was that banks could use their extensive capital and experience in making loans to win lucrative fees advising on mergers and arranging stock offerings for companies. Last year, commercial banks won several big underwriting and merger assignments, partly because of their willingness to provide loans to companies that wanted to combine.
But with some of those companies in fragile shape, the arrangements now look shortsighted.
"Banks that bundle credit with investment banking services will end up with the riskiest borrowers, since corporations that can't borrow easily are the most likely to welcome this strategy," said the McKinsey study.
JP Morgan Chase, which arranged large loans for WorldCom a year ago, was rewarded with leading a US$12 billion bond offering. The bank collected millions of dollars in fees on these deals, but a year later it is less certain the deals were a good idea: WorldCom shares have fallen 88 percent in the last 12 months, and the loans are trading below their face value. A JP Morgan spokesman declined to comment.
Many banks based their acquisitions of investment banks on what they viewed as the natural fit of lending and deal-making. Chase Manhattan, before merging with JP Morgan, bought the technology specialist Hambrecht & Quist because Chase, which had made venture capital investments and lent money to many less established companies, felt that it was missing out on taking those companies public.
The deal was poorly timed: months after the acquisition, technology shares went into a free fall and new stock offerings dwindled.
JP Morgan says that, unlike FleetBoston, it is sticking with the technology banking business. "We are happy with the progress we've made, and are well positioned for a market recovery," said Carlos Hernandez, head of equity capital markets at JP Morgan.
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