J.P. Morgan & Co., builder of the Old Economy, has officially unveiled its New Economy strategy, saying Thursday that it would devote $1 billion toward new ventures building and providing systems and services to enable e-commerce among financial institutions - a niche the banking company calls "e-finance."
The company formed LabMorgan, a unit that will act as an early-stage merchant bank focusing on attracting a client base of entrepreneurs, as well as on nurturing companies spun out of J.P. Morgan's own technology initiatives. The decision to specialize in e-finance allows Morgan to leverage its own expertise as a participant in the financial markets when it decides where to place its bets.
Nicolas S. Rohatyn, the recently appointed head of the unit, said the banking company could ultimately be called in to arrange initial stock offerings for companies launched by LabMorgan. In addition, market activities and trading commissions at the bank could also get a lift from on-line services developed by the unit that link traders and investors.
Mr. Rohatyn would not provide details on projects currently under development at LabMorgan. But he cited a handful of comparable initiatives that led to successful company launches last year, including Cygnifi, an on-line derivatives services company; MarketAxess, an on-line portal linking institutional investors to bond dealers; Horizon, an on-line risk assessment service; VolCenter, a portal for foreign exchange and precious metals traders.
Through LabMorgan, the banking company is inviting in a far smaller class of client to its roster, which in recent years has deliberately focused on blue-chip corporations. Similar efforts are under way at rival banks, such as Chase Manhattan Corp. and Citigroup Inc., as old-line financial companies struggle to get their piece of the business, and thus remain relevant, in the Internet economy.
"The big returns are all being made in the earliest stages," of Internet startups, said Peter Davis, a banking consultant at New York-based Cambridge Group. Banks "have to catch them earlier, and control the ideas as they go to market."
Morgan said most of the $1 billion pledge would be invested as capital in "promising ventures."
"We expect LabMorgan to be a catalyst for transformative global growth," said Douglas A. Warner 3d, chairman and chief executive officer, in a statement Thursday.
LabMorgan is the result of several years of technology development within Morgan's various businesses, Mr. Rohatyn said. The formation of the unit was accelerated in recent months by the desire of senior management to better coordinate those development efforts, and "put forward in a way that is substantive the effort that we are making in the New Economy," Mr. Rohatyn said.
Mr. Rohatyn, 39, was most recently in charge of Morgan's credit markets group. Most of his career at the company has been spent in the markets area, from building a swaps business in Tokyo in the 1980s to building emerging markets, foreign exchange, and credit markets groups in the last decade.
Though not a technologist by training, Mr. Rohatyn said he welcomed the change. "It's a great opportunity for Morgan," he said.
About 200 employees, recruited from inside and outside Morgan, will join the group by the end of this year. Six executives have already been named to join Mr. Rohatyn: Jeanne Feldhusen, Thorkild Juncker, Arthur Magnus, Peter Maillet, Peter Miller, and Phil Weisberg.