Sweet synergies: JPMorgan's CMBS business shot up the issuer rankings following the merger with Bank One. New-found synergies are likely to keep the big bank at the top of the CMBS rankings.

Author:Bergsman, Steve

At mid-point 2005, New York-based JPMorgan Chase & Co., for the first time in its history, climbed to the top of U.S. commercial mortgage-backed securities (CMBS) bookrunner league tables as reported by Commercial Mortgage Alert. [??] Expect it to stay there. [??] The commercial and investment banking concern's long slog to the top of the heap happened, for the most part, without the synergistic benefits resulting from the 2004 merger of the company with Chicago-based Bank One Corporation. [??] Once JPMorgan's CMBS business fully integrates with Bank One's commercial real estate lending unit, "it ought to explode," exclaims Steve Schwartz, co-head, along with Brian Baker, of JPMorgan's CMBS business. [??] Schwartz would be the first to admit the integration could have been quicker. It just took a little longer than expected for the two separate operating units to realize what each side could do for the other and how they could achieve cooperative goals. "We are still very much at the beginning," Schwartz says. [??] No one can say large corporate mergers are easy. Many companies do it badly. A good example can be seen just down the street from JPMorgan Chase, where Morgan Stanley, a financial giant built on the merger of Manhattan residents Morgan Stanley and Dean Witter, Discover & Co., encountered difficulty mixing two corporate cultures--and those unhappy circumstances resulted in the ousting this year of chief executive Philip Purcell and the return of John Mack, former chief executive officer (CEO) of Morgan Stanley, who was previously ousted by Purcell.



JPMorgan is the investment banking arm of JPMorgan Chase, which was built by a series of megamergers over the past two decades: Chemical Bank and Manufacturer's Hanover Trust in 1991; Chemical Bank and Chase Manhattan Bank in 1996; Chase and J.P. Morgan in 2000; and, finally, JPMorgan Chase and Bank One in 2004.

Leadership succession is not a problem for the new JPMorgan Chase. The highly esteemed James "Jamie" Dimon, former chief executive officer of Bank One and current president and chief operating officer of JPMorgan Chase, is to assume the chief executive title of the company when William Harrison, the current CEO, retires in 2006.

By all accounts, the last merger went as planned--it just took time for some of the operating units to realize the synergies.

"I don't remember the moment, but it happened right after the merger. I was thinking, 'This is an enormous opportunity for us,'" says Schwartz.

What Schwartz saw in the deal was Bank One's commercial real estate lending platform, in particular its very healthy construction and middle-market lending, which was a missing piece in JPMorgan's structured finance and real estate lending business.

When Chase and J.P. Morgan merged five years ago, it created a powerful investment banking firm ranked in the top 10 for CMBS issuance.

Looking back just to 2002, JPMorgan ranked No. 5 with $5.219 billion in issuance in the CMBS bookrunner league tables as put together by Commercial Mortgage Alert. In 2003, issuance increased to $7.348 billion but its ranking stayed the same. By 2004, JPMorgan tapped $11.077 billion in issuance and a No. 2 ranking in the league tables.

The merger of Chase and J.P. Morgan also created opportunities for individual clients of what had been the separate banks. FelCor Lodging Trust Inc., the Irving, Texas-based hospitality real estate investment trust (REIT), had been a Chase client since FelCor went public in 1994. It has stayed with the merged financial firm and, in fact, expanded its dealings with the bank.

JPMorgan has been the lead bank on FelCor's line of credit, which at one time was as high as $1.2 billion. On the CMBS side, FelCor has done $700 million in borrowings over the past six years with JPMorgan. All that's...

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