A $75 million investment in preparation for the single European currency has begun to pay off for Chase Manhattan Corp.-in the form of a sizable piece of business from J.P. Morgan & Co.

Chase said Monday that its New York-based competitor tapped it to be the primary supplier of European Currency Unit clearing services, starting next week. After Jan. 4, 1999, Chase would provide similar support for the new euro.

Terms of the contract were not disclosed, but Morgan's fee will be on a per-transaction basis.

It is an early and important victory in Chase's drive to enhance its international operating stature as the euro takes hold. Showing its resolve to be among a handful of truly global corporate banks and payment servicers, Chase has established an operating hub in Frankfurt that will serve as J.P. Morgan's point of entry into major clearing networks.

Richard Lowry, senior vice president of Chase Treasury Solutions in London, said it was significant that another New York money-center institution had chosen Chase rather than a Europe-based competitor.

Mr. Lowry predicted that Chase will be involved in more such deals with major banks as the euro looms and they decide it makes sense to take advantage of groundwork already laid.

"We believe that Chase's investment of $75 million in euro capabilities will provide J.P. Morgan with the solutions to gain the full potential of the new single currency and help them to concentrate on growing their business," Mr. Lowry said.

"It is a ringing endorsement that says Chase will do a bang-up job in this," said Lawrence Forman, cash management analyst at Ernst & Young in New York. "It's a real feather in Chase's cap."

The J.P. Morgan contract builds upon an existing relationship in which Chase clears Morgan's German mark transactions, Mr. Lowry said.

Chase has identified payments as a crucial line of business. It clears $1 trillion in U.S. dollar-denominated transactions daily, making it the largest such currency clearer in the world. It is also the third-largest clearer of mark transactions and the fifth-largest of Japanese yen, according to Chase officials.

J.P. Morgan, which at yearend 1997 was about $100 billion of assets, or 28%, smaller than Chase, has become known for an aggressive and well- reasoned approach to outsourcing, or turning parts of its operations over to outside specialists.

"The underlying strategic philosophy is to outsource where it can," said Bradley Ball, equity analyst at Credit Suisse First Boston. "Morgan is paring back activities in areas of processing where it doesn't feel it has a competitive advantage and doesn't want to make the necessary investment to get scale."

In 1996 it entered into a seven-year, $2 billion data processing and telecommunications alliance known as Pinnacle, with AT&T Solutions, Bell Atlantic Network Integration, Computer Sciences Corp., and Andersen Consulting.

The bank has also outsourced wire transfer and check processing functions to Hongkong & Shanghai Banking Corp.

For the euro work, Morgan solicited bids in January from several institutions, then narrowed the choice down to four. It was attracted to Chase's size and track record as a correspondent bank.

"With the appointment of Chase Treasury Solutions, we are taking the necessary preparatory steps in the interest of our customers for the introduction of the euro," said John Carlisle, a London-based managing director with J.P. Morgan.

"There is a considerable amount of work to prepare for the euro," he said. "We wanted to get that out of the way as soon as we could so we could focus on getting our systems ready for the fourth of January," when the euro makes its debut.

Chase will provide J.P. Morgan with direct access to large-value payment and settlement systems in Germany and France, including the euro Banking Association's euro clearing system and the CHAPS-euro system in the United Kingdom. Access to other networks will be via the Target multinational settlement system.

J.P. Morgan will funnel payment instructions to Chase in Frankfurt and in Bournemouth, England, through Swift, the international bank telecommunications system.

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