Marketplace: News Archives

Wednesday, September 13, 2000
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It's Wednesday, the 13th of September. I'm David Brancaccio.

Get used to this hybrid: "J.P. Morgan Chase & Company." Two of Wall Street's most visible and venerable brands today announced a nearly $30 billion merger. Chase Manhattan Bank does a brisk business in commercial and retail banking and has done well brokering deals with cutting-edge technology companies. J.P. Morgan missed the high-tech stuff, but does a lot of investment banking in Europe and makes handy profits managing the nest eggs of those the industry calls "high net-worth individuals." The merged company could set up quite a little museum in its foyer. Consider the history of J.P. Morgan, arguably the most powerful banker since the Medici.

Gordon: "His personal power was simply extraordinary and didn't outlast his own lifetime. The year he died, the Federal Reserve was created and we no longer needed an individual to act as the central bank of the United States."

Business historian John Steele Gordon at American Heritage Magazine. As for the Manhattan Company at the heart of Chase Manhattan, it was founded by Aaron Burr, who couldn't stand drinking putrid water or the idea of banking at the two other big New York banks founded by his arch-nemesis Alexander Hamilton.

Gordon: "Well, the Manhattan Company was in New York City, the only major city in the world besides Hong Kong that is surrounded by salt water. And New York had a terrible fresh water problem. The wells were foul. And so Burr, who was a very clever politician, got this charter through to provide the city with potable water and got a clause in it allowing him to open a bank. Well, they opened the bank six months after the charter was approved and didn't get around to providing any water for several years."

Among the merged company's corporate assets will be the pistols Burr used to kill Hamilton in that duel we all studied as kids. Marketplace's New York editor Michelle Brier reports now on the merging of the more conventional assets.

Brier: "After 150 years of unyielding independence, JP Morgan has finally taken the merger plunge. The bank, known for its wealthy clientele and rich history, teams up with Chase Manhattan to become the third largest financial organization in the world, with $600 billion in assets. The combination makes a lot of sense, says Jim Schmidt, a fund manager with John Hancock in Boston."

Hancock: "Chase is the worldwide leader in loan syndication. They have a big credit card business. They have a retail banking franchise in New York and Texas. JP Morgan has one of the leadership positions in investment management, managing money for high net worth individuals. They are big in derivatives and they are on the big league table in merger and acquisition and equity underwriting."

Brier: "JP Morgan has been money manager to the ultra rich but it's lagged behind competitors in the lucrative IPO business and in reaching middle class customers, says banking analyst Chris Blum at Edward Jones."

Blum: "Well, they have been the banker to the wealthy, focusing on it. One challenge they've faced is to be able to broaden their customer base beyond the white shoe, blue blood, clientele."

Brier: "Chase, meanwhile, has been on something of a buying spree. JP Morgan will be the bank's fourth major acquisition in ten months. That's taking its toll on the company's stock but Blum says that's a short-term problem. Company officials have said they expect to achieve major cost savings. One analyst predicts the firms could cut as many as 10,000 jobs when the merger is complete. In New York, I'm Michelle Brier for Marketplace."

You may have seen this reported as a $38 billion deal this morning, but it's based on the price of Chase's stock, which fell about ten percent today, knocking the value of the deal down to about $29.8 billion by the close of trading today. J.P. Morgan, one of the companies in the Dow Jones Industrial Average, rose 2.1 percent today.

In case anybody asks, the American financial institution with the most assets remains Citigroup, which is the old Citibank, Salomon-Smith Barney, and Travelers. The combined assets of J.P. Morgan Chase will fall just beneath those of number two, Bank of America, which is now fused with Nation's Bank.

About 500 oil tankers, many escorted by police, headed out across Britain today to begin re-stocking gas stations that have run dry following refinery blockades by farmers and truckers. The protesters want the government to lower gas taxes, which account for three-quarters of the pump price in the U.K. the equivalent of about five dollars a gallon. Prime Minister Tony Blair is resisting a fuel tax cut, despite opposition from most of the British public, including the middle class family we've been following this year on Marketplace. John and Irene Greensted both drive to work from suburban London.

Mr. Greensted: "I reckon I've got about five days left of traveling to work, and then I shall be empty."

Now John, you only drive ten miles each way. Irene, you drive a little bit more.

Mrs. Greensted: "Yes I do. My trips about 70 miles round-trip and I've got enough now for two trips. And, I just walk to the local shops, etc., because we want to keep some petrol in the car in case of emergencies. If any one got hurt or had an accident, we couldn't get an ambulance. We'd have to get the car out."

Have you actually driven past any petrol stations that look dry to you?

Mr. Greensted: "Oh yes. They've been closed really for the last two days. There's hardly been anyone able to fill up for two days now. Today, there's no stations open round us."

Have you stocked up at all?

Mrs. Greensted: "No, I haven't panicked because today the supermarkets are putting limits on everyone because yesterday people were rushing around buying masses of food they didn't really need. So today, they're saying one pint of milk, one loaf of bread, one piece of butter, one bag of sugar. So, they're limiting now because lots of people are really just going for the top and being greedy and it's not on. Because we're all behind this action that's been taken. Most of Britain wants fuel charges reduced and I think we'll all have to put up with a bit of hardship and tough it out until the end. People are very angry about the price of fuel and I think it's just ordinary people who are out there protesting. It's not unions or anything else. It's just the ordinary British person that's a bit fed up with the whole thing."

Why is Tony Blair bucking public opinion and refusing to cut gas taxes? David Manasian of The Economist Magazine says it's not because the government needs the money.

Manasian: "Because Britain is an oil producer, rising oil prices has also meant increasing taxes from oil production in the North Sea. And, the British government right now is in very good financial shape. So, it could probably afford to cut fuel taxes in the short term. But if they do that, they're going to attract a whole string of protests from other groups complaining about other forms of taxes or lack of spending on various things. And, they would have to abandon one of their professed reasons for raising fuel taxes, which is global warming and support for the environment. But most of all, they really have dug their heels in. They do not want to do what the French government did. They do not want to back down in the face of these kinds of illegal protests."

The Economist Magazine's David Manasian.

In Indonesia today, a car bomb rocked the Jakarta Stock Exchange, killing at least 15 people and injuring dozens of others. The building also houses the offices of the World Bank. No one has yet claimed responsibility for the explosion. As Jeff Tyler reports from Jakarta, some observers believe the bomb was intended to strike a blow at the country's economy.

Tyler: " Indonesia is already considered a very high-risk country for foreign investment. Social conflict, political instability and wide spread corruption have earned it a very low rating from Standard and Poor's. Many investors have steered clear of this market. So far this year, the Jakarta Stock Index is down 34 percent, and now it's expected to fall further."

Wibowo: "There's no doubt that this bombing will dampen investor confidence toward the economy and the financial sector."

Tyler: "Dradjad Wibowo is an economist with the Institute for Development of Economics and Finance, a think tank in Jakarta."

Wibowo: "It might be part of a plan, a well-organized plan, to throw the country into financial chaos. There are a number of parties that will take benefits of any economic chaos in Indonesia."

Tyler: "Who would benefit by sending the country deeper into financial crisis? Some believe former president Suharto, who is scheduled to go on trial for corruption Thursday, may be trying to intimidate his accusers. Then again, rival political parties could use financial instability to topple the current government. Whoever is to blame, the terrorism is taking effect. The feeling of insecurity is spreading and many openly wonder who will be targeted next. In Jakarta, I'm Jeff Tyler for Marketplace."

Consumer issues are dominating the headlines from Capitol Hill. It's been tires, tires, tires for the last few weeks. Today, it's movies, music and video games. Marketplace's Rachael Myrow has more.

Myrow: "Jack Valenti, head of the Motion Picture Association of America, did his best to assure members of the Senate Commerce Committee today that movies, and their ratings, are not easily qualifiable."

Valenti: "All R-rated films are not alike. Many parents take their children to R-rated films. Many parents allow other adults to take their children to R-rated films. But the decision-making authority of whether or not your children enter that theater is yours and yours alone to make."

Myrow: "The federal government begs to differ. On Monday, after a 15-month, one million dollar investigation, the Federal Trade Commission concluded Hollywood is aggressively selling violence to kids, who, 85 percent of the time, seem to have no trouble getting into R-rated movies all by themselves. Most of the major studio heads did not testify today, which raised the hackles of Democratic Senator Joe Lieberman, who took time off from the vice-presidential campaign trail to attend the hearing."

Lieberman: "This morning, I am disappointed by the failure of the movie studios to produce witnesses here before your distinguished committee. The FTC report raises serious questions, and this committee, not to mention America's parents, deserve serious answers, not distant excuses."

Myrow: "But it may well be Hollywood's merely standing at a respectful distance. After all, much has been said of the industry's affinity for the Democrats this campaign season and there may be a reluctance to rock the boat too much. Whether or not that's true, it raises an interesting question. How much of the fury over media violence is politics, and how much is a real concern? Even the FTC report concedes the majority of parents are satisfied with how the movie industry's 32-year-old rating system works. I'm Rachael Myrow, for Marketplace."

And that's the top of our news for Wednesday. Today the Dow Jones Industrial Average fell 51 points, about half a percent.