Investors gave a cool reception to Chase Manhattan Corp.'s deal to buy J.P. Morgan & Co.

Despite cheerleading from Wall Street analysts, shares of both companies fell significantly in Wednesday's trading. Chase closed down $2.125, or 4.02%, at $50.6875, and Morgan slipped $4.25, or 2.29%, to $181.25. Morgan's shares were trading at a 12.4% discount to the announced deal price. Analysts said a selloff in J.P. Morgan shares was to be expected as investors took profits now on Morgan's recent run-up rather than wait for the deal to close. And though many argued that the deal is a good one for the long term, some tied the drop in Chase's shares to a perception that the price was too high and a fear that cultural clashes might slow the companies' integration.

"Usually these kind of mergers don't work," said analyst Andrew Collins of ING Barings. He cut his 2001 earnings projection for Chase by 20 cents a share, to $4.45, and cut his target price to $60 a share from $70.

Mr. Collins downgraded Morgan to "hold" from "buy," saying there is little opportunity for further gains. He downgraded Chase to "buy" from "strong buy."

A price of $190 a share would have been appropriate, Mr. Collins asserted, rather than the $207 a share indicated by Chase's stock price at the time the deal was announced.

Michael L. Mayo of Credit Suisse First Boston said investors do not always consider bigger to be better. Chase will now have to persuade the market that the long-term positives outbalance the short term negatives, he said, particularly the possible dilution of Chase's shares.

Chase and Morgan said that, for Chase to break even, J.P. Morgan would have to earn $2.8 billion next year. It would realize about $633 million of synergies - incremental revenue after incremental expenses plus savings - in the first year of a combination.

Kenneth T. Mayland of Clearview Economics said studies of past banking megamergers have found scant evidence of economies of scale.

"You can argue where these economies stop" accruing - at $500 million, $1 billion, or $5 billion of asset size, he wrote in a report, "but you certainly do not need to be $660 billion! Peer through the academic fog; ask yourself, do the biggest banks have the lowest cost structure, or are they the most profitable? The answer on both accounts, no!"

Analysts said talks between J.P. Morgan and Donaldson, Lufkin & Jenrette Securities Inc. and between Chase and Merrill Lynch & Co. had failed. Chase did not get the best deal it could have, they argued.

Chase "probably wanted Merrill Lynch, but they'll take J.P. Morgan," James Schmidt, a portfolio manager at John Hancock Advisors Inc. in Boston, told Bloomberg News.

The deal "moves Chase up into the leagues, but it still doesn't make them a bulge-bracket firm in equities," Mr. Schmidt said.

Most observers were positive about long-term prospects for the marriage.

Richard Bookbinder of Bookbinder Capital Management, a firm that manages a hedge fund of funds, called the prospective combination a "great merger between old and new economy. Instead of putting their toes into the water of globalization and trying new markets, they cut a deal to get it done," he said, pointing to Chase's approach to online banking and Morgan's business in Europe and Asia.

Frank J. Barkocy, senior analyst and principal at Keefe Managers Inc., dismissed the selloff as "the usual skepticism" and predicted that the Chase-Morgan combination would eventually find market approval. "It's a deal most have not anticipated," he said, "but it will be favorable."

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