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FOR IMMEDIATE RELEASE Investor Contacts: John Borden, 212-270-7318
Ann Patton, 212-648-9446
Media Contacts: Joe Evangelisti, 212-648-9589
Jon Diat, 212-270-5089
CHASE AND J.P. MORGAN PROVIDE GUIDANCE ON LOWER FOURTH
QUARTER EARNINGS AND UPDATE PROGRESS OF MERGER
INTEGRATION
NEW YORK, DECEMBER 14 - The Chase Manhattan Corporation (NYSE: CMB) and
J.P. Morgan & Co. Incorporated (NYSE: JPM) today provided guidance on lower
fourth quarter earnings for both companies and an update on the progress of
their merger integration efforts.
FOURTH QUARTER EARNINGS GUIDANCE
Earnings for both Chase and J.P. Morgan for the fourth quarter of 2000 are
expected to be substantially lower than this year's third quarter results and
current analysts' estimates. A difficult capital markets environment, coupled
with higher expenses, is expected to reduce earnings for both firms in the
fourth quarter. Despite deterioration in the external credit environment, the
credit portfolios of Chase and J.P. Morgan are performing relatively well. The
companies plan to issue a joint fourth quarter earnings press release on January
17.
- Total trading revenues for both firms are expected to be down from last
year's fourth quarter and the third quarter of 2000 primarily due to a
challenging market environment, including low volatility in currency
markets, wider credit spreads and a decline in customer volumes. In
contrast, combined investment banking revenues are expected to increase
modestly when compared to the third quarter of 2000.
- Private equity is experiencing mark-to-market losses in the fourth quarter
on public securities held by Chase Capital Partners. As of today, CCP has a
mark-to-market loss of in excess of $300 million in the carrying value of
the publicly traded portion of its portfolio. Cash realized gains are
expected to be significantly lower than in the third quarter of 2000.
- Cash expenses for both firms will be higher than in the third quarter,
primarily as a result of the inclusion of an additional month of expenses
related to Flemings, a normal seasonal pattern of expense growth, and
competitive pressures on compensation. Management is targeting that
expenses for 2001 will be flat on a year-over-year basis (proforma
including Flemings for full year 2000).
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- Credit risk measures for both firms remain stable. Non-performing assets
are not expected to increase materially in the fourth quarter. The
provision for credit losses will increase somewhat due to higher commercial
charge-offs.
- In the fourth quarter of 2000, special items at Chase will include an $870
million (pre-tax) gain on the sale of its Hong Kong-based retail banking
business, and special items at J.P. Morgan will include a $400 million
(pre-tax) gain upon the termination of its operating agreement with
Euroclear.
In a joint statement, Douglas A. Warner III, Chairman of the Board and Chief
Executive Officer of J.P. Morgan, and William H. Harrison, Jr., Chairman and
Chief Executive Officer of Chase, said: "The current market environment has
clearly put pressure on revenues and will lead to lower than expected results
for the quarter. At the same time, our merger integration process is both ahead
of schedule and working extremely well, and credit and market risk measures
remain stable. As proven by the overwhelmingly positive client response, we feel
stronger than ever about the value that will be produced by the merger."
MERGER INTEGRATION UPDATE
The Federal Reserve Board approved the merger on December 11. Shareholder
meetings to approve the transaction will be held on December 22, and a year-end
closing is anticipated. The following progress has been made during the fourth
quarter:
- Management has increased its estimate of merger synergies from
approximately $1.9 billion (pre-tax) to approximately $3 billion (pre-tax).
The current estimates are composed of approximately $2 billion of expense
savings and approximately $2 billion of incremental revenues less
approximately $1 billion of associated expenses. One third of the synergies
are anticipated to be achieved by the end of 2001, with the remainder
anticipated to be achieved by the end of the 2002. Revenue estimates assume
a return to more normal market conditions.
- Management expects balance sheet synergies to be realized over the first
year of the merger to lead to a reduction in nominal assets of
approximately $35 billion, or $8 billion in risk-weighted assets, for the
new company as compared to what they would have been for the two companies
separately. This would create in excess of $600 million of free capital.
- Management has increased from $2.8 billion (pre-tax) to $3.2 billion
(pre-tax) its estimate of one-time costs expected to be incurred in
connection with the merger. Management anticipates that the company will
take a charge of approximately $1.2 billion at the closing of the
transaction and that the balance of the one-time costs will be expensed
over the two years following the closing. Nearly 50 percent of the merger
expenses will be related to employee severance and compensation costs,
while the remainder are expected to be related primarily to technology,
systems-integration
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and facilities costs. Management expects 5,000 job eliminations as a result
of merger integration.
- Approximately 1,000 key management positions have been decided thus far.
Progress on merger integration continues at a rapid pace. Virtually all
systems decisions have been made and key facilities choices in New York,
London and other major locations have been made.
- Client reaction to the proposed merger continues to be favorable as
demonstrated by:
- From September 13, the date the merger was announced, through December
13, the new firm would rank number two globally, on a proforma basis,
in announced M&A advisory transactions (source: Thompson Financial).
- As part of joint marketing efforts requested by clients, J.P. Morgan
and Chase have given 117 joint pitches and won 47 new mandates. These
mandates are expected to lead to incremental revenues in excess of
$200 million in 2001. An additional 144 joint pitches are in the
works.
Chase and J.P. Morgan will hold a conference call for the investment community
today at 8:30 a.m. (EST) to discuss fourth quarter earnings and to provide an
update on the merger. A live audio webcast of the call will be available at 8:30
a.m. through the investor relations sites of www.chase.com and www.jpmorgan.com.
In addition, persons interested in listening to the call by telephone may dial
in at (973) 321-1040.
Chase can be reached on the Web at www.chase.com and J.P. Morgan's web
address is www.jpmorgan.com.
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This press release contains statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based upon the current beliefs and expectations of J.P. Morgan's and Chase's
managements and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. These
uncertainties include: the failure of Chase and J.P. Morgan shareholders to
approve the merger; the risk that the businesses will not be integrated
successfully; the risk that the revenue synergies and cost savings anticipated
from the merger may not be fully realized or may take longer to realize than
expected; the risk that the integration process may result in the disruption of
ongoing business or in the loss of key employees or may adversely affect
relationships with employees, clients or suppliers; the inability to obtain
governmental approvals of the merger on the proposed schedule or that adverse
regulatory conditions will be imposed in connection with a regulatory approval
of the merger; the risks of adverse movements or volatility in the securities
markets or in interest or foreign exchange rates or indices; the risk of adverse
impacts from an economic downturn; the risk of a downturn in domestic or foreign
securities and trading conditions or markets; the risks associated with
increased competition; the risks associated with unfavorable political and
diplomatic developments in foreign markets or adverse changes in domestic or
foreign governmental or regulatory policies; or other factors impacting
operational plans. Additional factors that could cause Chase's and J.P. Morgan's
results to differ materially from those described in the forward-looking
statements can be found in the 1999 Annual Reports on Forms 10-K of Chase and
J.P. Morgan, filed with the Securities and Exchange Commission and available at
the Securities and Exchange Commission's internet site (http://www.sec.gov) and
in Chase's Registration Statement on Form S-4 referred to below.
In connection with the proposed transaction, Chase has filed a
Registration Statement of Form S-4 with the Securities and Exchange Commission
containing a joint proxy statement-prospectus with regard to the proposed
merger and J.P. Morgan has filed a Definitive Proxy Statement on Schedule 14A
with the SEC that also contains the joint proxy statement-prospectus.
Stockholders are advised to read the joint proxy statement-prospectus because
it contains important information. Stockholders may obtain a free copy of the
joint proxy statement-prospectus and other documents filed by Chase and J.P.
Morgan with the SEC, at the SEC's internet site (http://www.sec.gov). Copies of
the joint proxy statement-prospectus can also be obtained, without charge, by
directing a request to The Chase Manhattan Corporation, 270 Park Avenue, New
York, NY, Attention: Office of the Corporate Secretary (212-270-6000) or to
J.P. Morgan & Co. Incorporated, 60 Wall Street, New York, NY 10260, Attention:
Investor Relations (212-483-2323).
