William B. Harrison Jr., president and chief executive officer of Chase Manhattan Corp., said Wednesday that the company is contemplating an initial public offering for all or part of its Chase.com business unit.
Speaking to a meeting of about 1,000 employees in New York, Mr. Harrison said the issuance of stock could create a new currency with which to make acquisitions of Internet-related companies.
Though Mr. Harrison did not say so in his talk, the same currency might also be attractive to the technology and "dot-com" marketing talent that Chase and other banking organizations may find difficult to lure from glamorous Silicon Valley companies and other prospective IPOs.
Market watchers have been speculating about such "dot-com carve-outs," particularly since some of the biggest financial institutions began launching Internet businesses with separate staffs and identities. These include Bank One Corp.'s Wingspanbank.com and Citigroup's Citi f/i. Spokesmen for those banks said stock offerings are not under discussion.
"Rest assured that there are a number of major financial institutions with market-cap envy right now," said Jane Wheeler, head of the Internet financial services group at Morgan Stanley Dean Witter & Co.
She said her company is having more than "a handful" of discussions with banks on the topic. "They desire a currency to attract and retain employees and expand the business," Ms. Wheeler said.
Some big banks have already taken action. In June, Toronto-Dominion Bank's discount and on-line brokerage division, TD Waterhouse Group, raised $1.01 billion in what was then the largest Internet IPO to date.
This spring FleetBoston Financial Group executives publicly pondered an IPO for SureTrade, an on-line brokerage run by the Fleet subsidiary Quick & Reilly Group. No action has yet been taken.
Mr. Harrison told Chase employees that investment bankers from Credit Suisse First Boston, Goldman Sachs & Co., Morgan Stanley, and Hambrecht & Quist -- which $371 billion-asset Chase is acquiring -- have visited Chase.com to analyze its underlying businesses. He was not specific about the timing of any IPO. A Chase spokesman said it is just one option being explored.
Just the fact that IPOs are being discussed "shows how far the leading banks have advanced in building their Internet-related businesses," said Ronald Mandle, an analyst at Sanford C. Bernstein & Co.
An alternative to a full-blown IPO would be a tracking stock, investment bankers said. A tracking stock is not separate from the parent stock but can trade at its own multiple. Donaldson, Lufkin & Jenrette chose this option for the on-line brokerage DLJdirect.
With a subsidiary's stock trading at a much richer multiple than the banking norm, Chase might find it easier to buy and own desirable Internet properties itself, rather than forming joint ventures or partnerships. Chase shares trade around 15 times earnings, but stocks of many Internet firms that have yet to show profits trade at 50 to 100 or more times revenue, making the dilutive effect of a stock deal by a bank unattractive.
David Hilder, an analyst at Morgan Stanley, said, "Any large bank that is approaching a million Internet customers has to be thinking about alternatives."
