£31bn merger to shake-up banks

WALL Street confidently expects a wave of bank mergers in the wake of the $58bn (£31.5bn) deal by JP Morgan Chase and Bank One to form one of the world's top three financial services groups.

Future mergers may not be as big as Wednesday's deal, which creates a bank with $1.1 trillion in assets that is second only to Citigroup in size in the US. But some analysts argue the pressure among larger groups to unite increases with the creation of mega-banks.

The JP Morgan-Bank One deal was greeted with approval by most analysts. 'It's a blockbuster of a transaction,' said Denis Laplante, who covers Bank One for Keefe, Bruyette & Woods.

JP Morgan Chase chief executive William Harrison will be chairman and chief executive of the merged group while Jamie Dimon, head of Bank One, will be president and chief operating officer, succeeding Harrison in 2006.

Laplante added: 'JP Morgan gets diversification out of capital markets into retail banking and Dimon gets to run the combined company with the brokerage capability he was coveting.'

JP Morgan, heavily involved in volatile businesses such as investment banking and mortgages-would benefit from the addition of Bank One's retail franchise. The combination should help stabilise income, analysts said.

Dimon, a former protege of Sanford Weill at Citigroup, had approached JP Morgan about a merger a year ago but was rebuffed. At the time, JP Morgan was struggling with bad commercial loans and regulatory issues related to loans to failed energy trader Enron.

Among other banks likely to be involved in a deal is California-based Wells Fargo, highly regarded on Wall Street, observers say.

While Bank of America is unlikely to be in a position to do another deal after its merger with FleetBoston last year, some believe that Citigroup is ready for another acquisition.

Although Weill has stepped down as chief executive, he remains a powerful force as chairman and his expertise has always been deal-making. Some analysts believe he would like to do one last big one before he retires.

There have also been persistent rumours that Merrill Lynch would like to merge with a major commercial bank, although it has never confirmed this is still part of its strategy.

US banks have been consolidating for several years as laws limiting them to specific geographical areas or types of business have been relaxed.

And, with the economy now on the upswing and many areas banking on a strong recovery, mergers are beginning to look more affordable.