J.P. Morgan Chase & Co. is open to making cash purchases to build its consumer banking operations, but a large stock transaction is not in the cards - yet.
William B. Harrison Jr., the company's chairman and chief executive officer, told a group of investors Tuesday that he would look for small acquisitions to build consumer businesses. But, he said, any transactions would be paid for in cash until the firm's beaten-down stock recovers. It has fallen 17% since the beginning of last year.
"We will not consider any significant acquisitions using our equity, because we think we are undervalued relative to our competition," Mr. Harrison told investors at the Goldman Sachs & Co. financial services conference Tuesday morning in New York.
Still, J.P. Morgan Chase will continue to invest in consumer operations and participate in the consolidation of that market, Mr. Harrison said. "Consumer is still not big enough for us."
He said the company would look for small acquisitions that it could fund with available cash, on the order of its purchase last year of an $8 billion credit card portfolio from Providian Financial Corp. The price of that deal was not disclosed.
J.P Morgan Chase is an amalgam forged over the last decade. On the consumer side it is the result of two mergers of equals in New York - first of Chemical Banking Corp. and Manufacturers Hanover Corp., then of Chemical and Chase Manhattan Corp.
Mr. Harrison's pedigree is from the "heritage" Chemical line, and the mergers of the 1990s were the legacy of his mentor, Walter V. Shipley, who retired from Chase at the end of 1999.
An investor asked Tuesday whether Mr. Harrison would do another merger of equals. "We'll look at that" once the stock recovers, Mr. Harrison said. But echoing Mr. Shipley's mantra of the late 1990s, when Chase was seen as losing ground in wholesale banking, Mr. Harrison said, "We don't have to do another merger."
Card portfolios are the most obvious choice for a deal. Sears, Roebuck and Co., for one, is auctioning its card portfolio, though some consider that too big a purchase for Morgan to make with cash only.
Branches are the bigger weakness at the company, and a deal in that area seems to be on Mr. Harrison's long-term agenda.
Chase, as the retail operations are known, has top national positions in mortgages, credit cards, and auto lending, but it lacks broad distribution; its branches are concentrated in New York City and in Texas. Analyst Richard Bove puts Morgan in a merger with Wells Fargo & Co.
"We would like to have more customer relationships in our consumer franchise," Mr. Harrison said. "In a lot of ways we could have a complementary fit with someone who has less of what we have but more of what we don't have."
