SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
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This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include, but
are not limited to, statements about the benefits of the merger between Chase
and J.P. Morgan, including future financial and operating results, Chase's
plans, objectives, expectations and intentions and other statements that are not
historical facts. Such statements are based upon the current beliefs and
expectations of J.P. Morgan's and Chase's management and are subject to
significant risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from
those set forth in the forward-looking statements: the ability to obtain
governmental approvals of the merger on the proposed terms and schedule; the
failure of Chase and J.P. Morgan stockholders to approve the merger; the risk
that the businesses will not be integrated successfully; the risk that the
revenue synergies and cost savings from the merger may not be fully realized or
may take longer to realize than expected; disruption from the merger making it
more difficult to maintain relationships with clients, employees or suppliers;
increased competition and its effect on pricing, spending, third-party
relationships and revenues; the risk of new and changing regulation in the U.S.
and internationally. 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).
Stockholders are urged to read the joint proxy statement/prospectus regarding
the proposed transaction when it becomes available, because it will contain
important information. Stockholders will be able to obtain a free copy of the
joint proxy statement/prospectus, as well as other filings containing
information about Chase and J.P. Morgan, without charge, at the SEC's internet
site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and
the SEC filings that will be incorporated by reference in 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 10017,
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). Information regarding the participants in the proxy
solicitation and a description of their direct and indirect interests, by
security holdings or otherwise, is contained in the materials filed with the SEC
by J.P. Morgan and Chase on September 13, 2000 and September 14, 2000,
respectively.
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The following is a transcript of remarks by Marc Shapiro, Vice Chairman of The
Chase Manhattan Corporation ("Chase"), at a "Town Hall" meeting of employees of
Chase and J.P. Morgan & Co. Incorporated held on September 14, 2000, in the form
such remarks have been posted on the intranet for employees.
It's a real privilege to have the opportunity to tell
the story of J P Morgan Chase & Company to the
investment community because I think it's a powerful
story. Each of you in the room and each of you
watching from around the world is a shareholder of
this organization. Sandy just told me that 21% of the
stock in J P Morgan is owned by its employees. And
every employee of Chase is a stockholder of Chase. So
you have a stake in what's happened. And what I would
like to do is explain to you the vision that we've
laid out for our investors and shareholders. And
really for ourselves, because this is what drives all
of us to be part of a winning team with a winning
vision.
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Chase Manhattan bank-J P Morgan Management Meeting Page 2.
The key to making it in our business, I've long
believed, is the right mix of clients, geographies
and products. If you can offer our clients enough
products across enough geographies and have enough
clients to pay for those products you've got a
winning ticket. What this merger does is give us that
combination. An unparalleled list of clients where we
can meet any need they have anywhere in the world.
The two organizations are so complementary. And let
me elaborate in each of these areas.
First in terms of clients. Now I get in trouble with
these slides because from each side there are other
places where we're listing one as the strength and
the other as a strength. I know we're in both. But
the point is, the reason this merger works is because
we're strong in different areas. Morgan has a great
historical presence in Europe and in Japan. Chase has
a big business with non-investment grade clients.
Even where we work together, like in
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financial institutions, and both have strengths.
Morgan has approached it from an advisory standpoint
and we have approached it from an operating services
standpoint. And you put the two together and you get
something like 4 billion dollars in revenue. I
believe that this deal was made in all of our
negotiations, the day that Geoff Boisi showed a list
of our 100 biggest fee transactions to Walter Gubert
and Walter could only find 5 clients of Morgan on
that list. These are very complementary client bases.
And that is what enables us to pay for all the
products that we have to sell.
It's also true that we are geographically balanced.
With over almost half of our revenue from outside the
United States, 30% in Europe. Probably larger than
any other American-based financial services firm. And
this geographic balance, I think, is an important
sales point to investors.
In terms of product leadership, there again we
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have the strongest breadth of products. And the way
to make money is to be a leader in the product. The
#1 or 2 player in a product makes money, can afford
to pay the best people and attract the best people.
The further you go down in the league tables the
harder it is to make money. We've got leadership
positions in our products. We bring these together
and we're going to enhance those leadership
positions.
These are growth markets. Each of the markets that
we're in we're in a world of globalization. And each
of these markets that we're in are growing very
rapidly. 10%, 20%, 30% or more. And the key is, that
in those growth markets we have leadership positions.
Inevitably we have to talk about league tables. And
let me just make three points about these league
tables. First on the debt side. The new J P
Morgan Chase & Company is the #1 provider of
corporate debt in the world. Non-stop. No question
about it. From originating loans to investment grade
and non-investment
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grade Bonds. You put the whole platform together, we
are far and away #1.
Secondly in M & A. This shows league tables which has
us around 4 in terms of global completed
transactions. But the numbers that are more important
to me is the fees that you generate. And when I look
at the two organizations and the fees they're
generating, we're running at an annualized rate right
now of about one point eight billion dollars. Which
would put us third, ahead of Merrill Lynch. And
clearly a key player. And this is before we put the
two client sets together, which I think, is going to
accelerate the growth rate of our M & A fees.
And finally in stock. One of the biggest issues that
arose yesterday, both in the press and with investors
is, are you there? Are you a bulge bracket player in
common stocks? Because the league tables don't show
it by adding up what we have done separately. But
what I would argue is, you can't do it that
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way. You really don't know what's going to happen
when we put the product set that J P Morgan has built
with the client base that Chase has. We looked at a
list of a thousand top clients, domestic clients at
Chase, out of a universe of 5,000. And when we ran
what those companies had generated in equity
underwriting fees over the last 3 years, on average,
if we got 20% of that business it would be 400
million dollars a year in fresh equity underwriting
revenues. There is no doubt in my mind that two years
from now we will be a bulge bracket player in
equities. And in risk management, unparalleled
strength. Both firms, probably the two strongest
firms in terms of risk management, interest rates and
foreign exchange. Put the two together. Each had
different strengths. Put the two together and we're
going to have a real powerhouse. We will be the
preferred counterparty for any institution in the
world that wants to manage their risk and interest
rates in foreign exchange.
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Let me just give you three examples of where I think
this product leadership is going to make a big
difference. They are all `hot' topics for investors.
The first one of these is wealth management. We are
together the second largest active money manager in
the United States. This shows us as third but
Barclays' is an index firm. We are behind Fidelity.
But we are ahead of Capital Group and Merrill Lynch
and Citigroup and Morgan Stanley. With assets under
management of 720 billion dollars. These assets are
balanced from type of asset with about half of it in
equities. They are balanced geographically. About
two-thirds in the US and one-third outside. And
they're balanced by type of client. 40% high net
worth, 60% institutional. This is a great business.
We have critical mass. And this will be a growth
business for us.
The second example, equity derivatives. Very fast
growing revenue streams for every global investment
bank. Morgan has built a great platform with revenues
going from 200 million
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to a billion-and-a-half in three years. We had a
meeting at Chase about two weeks ago where we looked
at what kind of investment it would take to get to a
billion dollars in revenues in equity derivatives. It
would have been substantial and we would have done
it. But we don't have to do it now because we have
the platform. And if you take that platform with a
ten times larger client base, I believe that the
growth rate will only accelerate from here.
And finally, if you look at a third example which
is Europe. Europe is the hot spot for investors.
Everybody knows that the growth rate in Europe is
going to be faster than anywhere in the world in
terms of equity offerings and mergers and
acquisitions business. One of the things that we've
learned in just a short time about our new partner is
J P Morgan is as much a European bank as it is a US
bank. The whole thought process, the client base and
the way they approach
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business, it is the European franchise. Put that
together with a broader product set, and again, I
think we have a powerhouse in Europe that will
benefit from the explosive growth of that market.
Now we had a great strategic vision and we had a
great platform but the other key issue in evaluation
of stock is, does this work from a financial
standpoint. So I want to take you through that just
quickly. These are some details about the transaction
which everybody knows. So let me get to the math of
how this transaction works.
There are 186 million shares of J P Morgan
outstanding including the options. We're going to
issue 688 million new shares. On those shares we need
to earn this year 2 point eight billion dollars. The
estimated earnings for Morgan are two point one
billion. So we have a gap of $700 million dollars to
make up. There's no question in my mind that we will
make that gap up. What we have identified on
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a onservative basis, in terms of synergies from the
merger, is one point two billion dollars. I think
that we can do that. The way we've looked at it is
first of all we think there are going to be
incremental revenues of a billion dollars. That is a
very conservative number in my mind. For example, we
assume no incremental revenue in FX and interest rate
market's businesses. In fixed income and FX markets
businesses. You worry about whether you'll lose
revenue from overlapping customers. But in every
merger that we've done so far, we were a net gainer
of revenue. Because we had really different
strengths, different client bases and the powerhouse
that you put together is a more attractive
counterparty. So I think the odds are we will gain
revenue. But we didn't put anything into that. We
also assume that it will take a lot of expenses to
deal with the incremental revenue. There will be
expense savings.
The number that we've got in here is 12% of our
combined expenses. In the two previous
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mergers we looked at 20% of our combined expenses.
The reason it's not as high is because there are
fewer overlaps. There's no doubt in my mind that we
can reach this number which is a combination of
people, facilities, consultants, technology. And when
you look at it on the people side net-net, I don't
know there's going to be a lot of change because it
takes more people to deal with the incremental
revenue. We will have some up-front charges but when
we get to the end of the day, I believe the ability
to realize these synergies and make this math work is
going to be very powerful.
What does our platform look like now that we have the
earnings restored, what will it look like? I think it
will be a very well balanced and high growth
platform. In addition to a very large investment
banking business, one of the largest in the world, we
will have a large wealth management business.
Probably the best and largest private equity business
in the world investing in equities for our account,
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probably with about 20 billion dollars under
management. The largest single business that anybody
has. Certainly the largest of any public company. And
one that will be a great contributor to earnings over
the next several years. Operating services business.
A leader in each of our key operating services.
Whether it's custody, cash management or global
trustee. The leader. A leader in that business.
And finally, in the national consumer services
business, a large business. 10 billion dollars in
revenue. Almost 3 billion dollars in profits. Where
we add an important dimension of diversification. A
high return business. 20% return on equity. That is
critical to the diversification and the broad base
nature of this institution.
So the real question that people are asking me is,
well what is this stock worth? How is it going to be
valued? I was walking in with Don Wilson and Bill
Winters and I was telling them they need to go out
and generate a lot of
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revenue to pay for this. And they said, well we'll
generate the revenue. You have to generate the PE
ratio. So let's talk about what is going to drive
that PE ratio.
First of all it's going to benefit, because I think
this organization has higher growth rates than either
of us could have had independently. This will
accelerate our growth rate beyond what either one of
us could have done independently. Because of the
synergies. Because of putting together the
overlapping client bases and overlapping product
sets, and also because our product mix has shifted
toward higher growth products.
Secondly, I'm a great believer that leadership
positions drive higher returns. No doubt about that.
If you're the leader, you can attract the best
people. You can pay the best. And you can make the
most money. We will have more leadership positions.
Third, lower risk. No doubt that diversification
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is what aids risk. We have two great firms in terms
of a history of risk control. Highly respected in the
marketplace. The very act of putting them together,
assuming we keep the right risk systems in place,
will reduce risk and lead to a more stable and
balanced earning stream.
Fourth, free cash flow generation. This is a company
that will be very efficient in its balance sheet. We
will be able to combine, have a smaller balance sheet
than we had before. Our capital will go further. This
is a company that is very disciplined. Both
companies, very disciplined about the use of capital.
We will be generating a lot of earnings without the
need to grow assets, and the required capital to
support those assets. So we will have a lot of free
cash flow which can either be reinvested in growth
businesses or returned to stock holders.
And finally, it completes the platform for both of
us. Both of us had a strategic hole. For
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Chase, not enough products. And in particular not
enough products. For Morgan not enough customers.
Those were the questions that were overhanging both
of our stock prices. We removed that question. And,
as Bill pointed out yesterday, I won't have to answer
one more time for the 800th time, when are you guys
going to buy Merrill-Lynch? (LAUGHTER) Never!
I think this is going to be a home run for our
employees and for our stockholders. With a tremendous
creation of value. All we have to do is deliver on
this new competitive model with an unparalleled
client base. The ability to meet any need for any
client, anywhere in the world. If we can do that with
strong financial discipline on risk, on capital and
on expenses, then we will deliver the shareholder
value that all of us are expecting. And we will build
the type of company that all of us want to work for.
Thank you very much.
