Just months before their merger is set to go before a shareholder vote, top executives from Chase Manhattan Corp. and J.P. Morgan & Co. are saying that cost savings and job cuts in investment banking could be far larger than they originally forecast.
In September, when Chase's deal to buy Morgan was announced, the two projected cost savings of roughly $1.5 billion, or 12% of the banks' combined expenses, and said most of that would come from combining their sizable investment banking operations. Shortly after the announcement, top executives estimated that about 3,000 would lose their jobs.
Now these top executives are on a road show, talking up the deal to analysts and investors and tweaking the projections. Andy Collins, an analyst at ING Barings, said Chase vice chairman and head of investment banking Geoffrey T. Boisi told a gathering of bank analysts in Boston Thursday that revenues and expected synergies would be materially higher than those initial projections. Mr. Collins attended the analyst gathering.
The statements came in a presentation at the Bank Analysts Association of Boston's annual meeting. Mr. Boisi could not be reached for comment by deadline.
A spokeswoman said that the comments by Mr. Boisi were consistent with the statements other Chase and Morgan executives have made in recent weeks - that the original projections were conservative.
Now, analysts say the cost-savings target could be closer to $1.88 billion, or 15% of expenses.
Mr. Boisi, an investment banker who joined Chase in the summer when the company bought his boutique advisory, Beacon Partners, said that the raising of the cost-savings goal could mean a much higher number of job cuts.
But other Chase executives have already indicated that they would be handing out more than 3,000 pink slips. William B. Harrison Jr., Chase's chairman and chief executive officer, told an audience at Columbia University in last month that layoffs in both banks' wholesale business would be more like 15% than 10%. That would mean 4,800 employees would become ex-employees.
An additional boost to cost savings may also come from the way Chase and J.P. Morgan are structuring their employee retention packages.
In a recent research report, ING Barings' Mr. Collins wrote: "We think Chase plans on paying bonuses sometime early next year, and will keep many of the departing employees around until that time. This eliminates the need for a big severance payment."
In raising the cost-reduction target, the companies may be trying to rekindle their courtship of Wall Street, which has shunned their stocks since the merger deal was announced.
Chase has been particularly hard hit. Since the merger was announced Sept. 13, Chase shares have lost 14% while Morgan's have dropped 11%. The drop was affecting employee morale, prompting both companies to issue a statement last month reassuring the troops and investors that they would continue to plow ahead with the merger despite the market's downturn.
"I think they are being very aggressive putting this deal together," said Steven Eisman, an analyst at CIBC World Markets.
Chase and J.P. Morgan admittedly have a fair amount of overlap, particularly in the ranks of high-paid investment bankers but also in their Internet groups - Chase.com and Lab Morgan.
On Wednesday it became more apparent that more cuts are on the way in investment banking. An internal memorandum revealed a more detailed structure for the combined company's European operations. Walter Gubert, the J.P. Morgan executive who had already been named chairman of investment banking at J.P. Morgan Chase, has appointed several of J.P. Morgan's investment bankers in Europe to top management positions in the region.
Still, Mr. Eisman said he doubted there would be increased execution risk because of the higher-than-projected payroll reductions, an important factor in any investment banking merger where the assets acquired are largely a function of personnel.
"This is happening at a good time for them, since a lot of firms have merged and there are fewer places for people to go," Mr. Eisman said.