A company with a pedigree.

Author:England, Robert Stowe
Position::Merger between Chase Manhattan Mortgage Corp. and Chemical Mortgage Co. - Servicing Management - Cover Story

The demanding task of integrating the former Chemical and Chase Manhattan mortgage companies is largely complete, and the initial cost savings are substantial. Chairman Tom Jacob is expected to apply some of the sophisticated information technology and marketing savvy to his huge new servicing portfolio that proved so successful in the credit card business.

Remember those food chain charts from biology class? Tiny ocean plants are eaten by tiny organisms, which are then eaten by small fish, only to be eaten by sequentially larger and larger fish. This has been the pattern for consolidation in the mortgage banking industry in recent years.

But the 1996 megamerger of Chase Manhattan Mortgage Corporation into Chemical Mortgage has no obvious parallel in nature. It's more like one very big fish consuming another, nearly doubling in size and then adopting the physical appearance of the swallowed fish. As such, Chemical Mortgage's acquisition of Chase and subsequent adoption of Chase's name is also without precedent in the mortgage banking industry.

The two companies originated a combined total of $27.4 billion in 1995 and had a combined servicing portfolio of $128.3 billion at year-end 1995. The merger placed the new Chase among the top three firms in origination and servicing.

Even as the merger of two giant mortgage companies was making history at the new Chase's headquarters in Edison, New Jersey, it was overshadowed by the merger of the two parent banks. That larger $11 billion merger of Chemical Banking Corp. and Chase Manhattan Corp. formed the nation's largest bank with assets at the end of the third quarter 1996 at $323 billion, edging out long-time No. 1 Citicorp and creating a banking powerhouse with a very strong capital base to support its operations.

The planning for the integration of the two mortgage banking companies was handed to a team of top Chemical and Chase mortgage executives in September 1995, shortly after Chemical Bank announced the merger. The idea was to carefully identify where overlaps occurred, what cuts would be made in offices, operations and personnel, and be ready to move swiftly to execute the plan right after the closing of the deal on March 31, 1996.

Aside from the obvious difficulties of integrating two very large mortgage companies with some overlap, the problem remained that both companies were still absorbing and incorporating major earlier acquisitions. In 1994, Chemical Mortgage had acquired the independent, publicly held Margaretten Financial Corp., of Perth Amboy, New Jersey, for $300 million. Margaretten had been spun off from Primerica in 1992. This acquisition by Chemical had been preceded by the 1991 banking merger of Chemical Corp. with Manufacturer's Hanover Bank, which also involved merging their mortgage banking operations.

Chase Home Mortgage, then headquartered in Tampa, Florida, had also been busy expanding by acquisition. Chase had acquired American Residential Mortgage Corp. of La Jolla, California, for $348 million in 1994. This had been preceded a year earlier by the acquisition of a smaller company, Troy & Nichols of Monroe, Louisiana.

The Margaretten and American Residential acquisitions signaled a strong desire by both banks to significantly expand the retail side of the business. Indeed, the merged retail operations in the new Chase represents the second-largest retail originator in the United States, surpassing Countrywide Home Loans of Pasadena, California, and second only to Norwest Corporation of Des Moines, Iowa.

Establishing personnel

But, for Chase Manhattan Mortgage's new chairman and CEO, Thomas Jacob, the immediate objective of integration was clear. "We had to integrate the two companies without losing the key performers in both companies," the staff in sales and operations who, Jacob says, are the most valuable asset for any mortgage banking company. Jacob, a courtly and reserved man, was candid during an interview at Chase Manhattan Bank's headquarters in New York about the challenges the merger posed. Jacob divides his time between the New York office and the mortgage company's New Jersey headquarters. The merger and integration process "creates a set of uncertainties, which competition is quick to take advantage of," Jacob says, meaning competitors make enticing job offers in the middle of the whirlwind of uncertainty that accompanies every merger.

Jacob, 58, came to the United States from India as a young man. He earned his M.B.A. at Columbia University and, beginning in 1974, made a career in consumer banking at Chemical Bank. Jacob eventually headed the bank's profitable credit card operations as well as its consumer insurance operations. He started overseeing mortgage operations in 1989. It was not until 1995, however, that he began to run the mortgage business directly.

Outsiders describe the challenge involved in merging Chase and Chemical. "They have a Herculean task of putting this together, says an industry executive familiar with the new Chase. "It's an amalgam of the old Chase and the old Chemical, which, in turn were made up of the acquired resources. In this environment, it is a bit difficult to achieve the oneness or team spirit that is required."

Another observer, Felix Beck, the former head of Margaretten and now a consultant to Chase Manhattan Mortgage, says that some bank officials have said that the merger of the mortgage companies was the most difficult assignment in the entire merger process.

It should then come as no surprise that part of the merger fallout was the loss of some top managers. One such departure was that of former Chase Chief Executive Tom B. Koons, who left the old Chase before the merger was completed. Koons, after a stint in consulting, is heading up Dime Mortgage, Inc., the mortgage banking business of The Dime Savings Bank of New York, FSB. Dime Mortgage is moving its mortgage banking headquarters from Uniondale on Long Island, to Tampa.

After Koons left, Richard A. Mirro, who replaced Koons as chairman and CEO at the old Chase, became chief operating officer at the new Chase, only to leave in 1995 and join Fleet Mortgage Group in Columbia, South Carolina. In late 1996, Mirro announced he would join Koons at Dime Mortgage as president and chief operating officer. And, shortly before the merger was announced, Chemical Mortgage lost David Frank as its chief executive, who left to found his own company, American Mortgage Services in Woodbridge, New Jersey. In the wake of Frank's departure, Jacob stepped in as acting CEO at Chemical Mortgage, eventually being named the permanent chairman and CEO of the new Chase.

In the integration process other experienced executives also left. One might make too much of these losses, notes an industry executive, since "it may be inevitable that there's a talent drain in a large merger."

The new Chase also has been able to retain many talented executives, too, including three executive vice presidents who head the company's three main lines of production business. One is Terry Hall, a former Chemical executive vice president over the wholesale business, who now heads the merged wholesale/broker business of the new Chase, which is based in Jacksonville, Florida. Another is Deane Hall, no relation to Terry, who was executive vice president over wholesale business for old Chase in Tampa and is now heading the correspondent business for the new Chase in Jacksonville. And, finally, Thomas Garvey, who started up and headed the old Chase's jumbo mortgage operation, is now the head of retail originations and operates out of the new Chase's headquarters in Edison.

Data mapping

The most pressing assignment for the new executive team was the rational integration of the two companies. How was this to be done to minimize confusion and maintain business and personnel? The integration planning began well ahead of the merger in October 1995 and lasted until January 1996.

The first task of the merger...

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