Could Chase Manhattan Corp. be abandoning a big-bang acquisition strategy in favor of smaller deals to build up its investment banking and asset management businesses?
Even as the $406 billion-asset banking company closes in on completion of a deal to buy the London-based merchant bank Robert Fleming Holdings Inc., reports in the British press have it preparing a $1.6 billion bid for Dresdner Kleinwort Benson.
Analysts said Chase's expansion efforts abroad, coming just one quarter after it completed a $1.7 billion deal for San Francisco-based Hambrecht & Quist, highlight the degree to which Chase management has been willing to eschew the big "transformational" merger in favor of picking up market share through piecemeal acquisitions.
A Chase spokesman declined to comment on the Fleming deal and on the speculation about Dresdner Kleinwort. A spokeswoman for Dresdner also declined to comment.
Dresdner Kleinwort Benson, the investment banking arm of Dresdner Bank AG, which is planning to merge with Deutsche Bank AG of Frankfurt, became available because of overlap between Deutsche and Dresdner's investment banking arms.
Chase and Fleming confirmed late last month that they were in negotiations. That deal, with an estimated price tag of $6 billion to $7 billion, would substantially boost Chase's asset management capabilities, particularly in high-growth Asian retail markets.
A source familiar with the Fleming negotiations dismissed the accounts of talks with Dresdner Kleinwort on Monday and said that Chase executives are focused on finishing the Fleming deal. The Dresdner Kleinwort talks were first reported in the Independent on Sunday, an English newspaper.
The Fleming deal has the fingerprints of Neal S. Garonzik, a Chase vice chairman who was brought to the bank last summer by newly appointed chief executive officer William B. Harrison Jr.
Mr. Garonzik's mission, in addition to daily oversight of asset management, is to help the bank develop a broad strategy for building investment banking and asset management capabilities.
Just two years ago, under previous management, Chase was widely rumored to be in talks with major U.S. investment banks, including Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co., to fulfill those same goals.
Though Chase's top executives, then and now, have repeatedly said they were under no pressure to do any deals, the conventional wisdom held that Chase management was leaning toward a "transformational" merger that would vault the company to the top ranks of investment banks.
The more recent pattern of smaller acquisitions indicates "Chase's willingness to do tactical deals as opposed to large strategic deals," said George Bicher, an analyst at Deutsche Banc Alex. Brown.
"This was the way they have to go," added Lawrence Cohn, an analyst at Ryan Beck & Co. "They would rather have done a major acquisition and gotten it over with. But they are not willing to just do nothing."
One advantage of smaller deals is the substantially reduced integration risk, analysts said. Chase met with mild criticism last fall when it announced plans to acquire Hambrecht & Quist - certainly not the merger everyone was looking for - but by most accounts that deal has gone smoothly. Chase H&Q, as the unit is now called, reaped $100 million in additional revenues in its first two months of operation, far ahead of the one-year pace Chase had originally projected.
Chase has been eager to expand its base in Europe to take advantage of the burgeoning market for mergers and acquisitions advisory, asset management, and equity underwriting. Chase already has a substantial and booming bond business on the Continent. During the first quarter, for example, Chase rose to sixth place in high-yield Eurobond underwriting, with a 7.2% market share. In the same period last year, Chase ranked 26th, with less than a 1% share.
Additional deals after the Fleming transaction "would not be surprising," said Henry C. Dickson of Salomon Smith Barney. "Europe is an area of growth, and Chase has benefited from its European presence."
Other banks are following a similar expansionist strategy. Earlier this year Citigroup struck an agreement to buy the investment banking operations of Schroder PLC.
Chase considers the Fleming deal to be a play first for asset management and secondarily for investment banking.