In early September the management teams of Chase.com and LabMorgan - rivals in online financial services - met for drinks.
Their parent companies, Chase Manhattan Corp. and J.P. Morgan & Co., had just announced an agreement to merge, and it was time for the two units to get acquainted. Each, having been charged with developing strategies to propel their companies to prominence on the Internet, sized the other up with a mixture of wariness and curiosity.
"When the blue team meets the red team for the first time, there are the usual long stares about 'what do these guys know? how are they doing compared to us?' - and that's a healthy thing," said Denis J. O'Leary, who was a Chase executive vice president and the head of Chase.com.
After some more get-acquainted events, including a joint cocktail party, a holiday bash, and an exchange of gag gifts, the executives discovered that the cultural differences between two big banking companies in the competitive New York marketplace were not as big as they had imagined.
"Our firms actually know each other relatively well," said Nicolas S. Rohatyn, who was a managing director of the original LabMorgan. He, like Mr. O'Leary, is now an executive vice president and co-managing executive of the new LabMorgan. "We knew there wasn't going to be a huge cultural issue."
But in the two months that the units have worked together as LabMorgan under their new parent, J.P. Morgan Chase & Co., some surprising facts have been unearthed.
"We found there wasn't that much overlap between Chase.com and LabMorgan," Mr. O'Leary said. "While there was tremendous overlap on what we were trying to get done, there was not tremendous overlap in how we were doing it before the merger."
The contrast in the two companies' Internet playbooks points to the wide range of ways in which financial institutions are probing methods to exploit the Internet. Companies have experimented with funneling responsibility for the Internet into narrowly focused incubation units, spreading it amongst every business unit, and various combinations in between.
Mr. O'Leary and Mr. Rohatyn say the different agendas of the original LabMorgan and Chase.com now are helping to dramatically accelerate the rate of change at Morgan Chase. The combined efforts of two-year-old Chase.com and one-year-old LabMorgan are saving the new entity 18 to 24 months of development time, they said.
Chase.com was focused on retail banking technologies, and the original LabMorgan targeted investment banking and capital markets. LabMorgan had a more developed presence in Asia and Europe; Chase.com was stronger in California. Chase.com also had an in-house due diligence team and an engineering and e-consulting capability, all of which LabMorgan lacked.
Most of the differences were a "historical accident more than anything else," Mr. Rohatyn said.
"You couldn't do it all at once no matter who you were," Mr. O'Leary said.
The executives say the combined unit will be even better positioned to advance once it moves into a newly renovated office, an airy space on the top two floors of a downtown Manhattan skyscraper. The move is scheduled for Monday.
Fortunately, Mr. Rohatyn said, LabMorgan has ended up "very high" on the new company's radar screen, though the unit now has a smaller percentage of the company's employee base. As often happens in mergers, Morgan Chase is spending more on the new LabMorgan than either of its predecessors could have spent alone but less than the total of what the two companies would have spent independently, he said.
LabMorgan has about 300 employees, not counting people the unit can tap from other departments, and it had no significant layoffs as a result of the merger.
So far this year the new LabMorgan, with its fortified resources, appears to have accomplished quite a bit. In January it announced that corporate customers would soon be able to send electronic invoices to their business partners through a service created in conjunction with J.P. Morgan Treasury Services, formerly Chase Treasury Solutions, and a Montreal company called BCE Emergis.
That month the unit also invested in and became a founding partner of DealerTrack, a joint venture with Wells Fargo & Co. and Americredit Corp., the largest U.S. auto lending company. The Garden City, N.Y., company lets automobile dealerships submit free loan applications from their customers who want to lease or buy cars.
And last month LabMorgan and its parent unveiled bPurchase, an Internet marketplace that lets owners of small and midsize businesses get price comparisons and discounts on goods from vendors like Office Depot and Barnes & Noble.
Whether LabMorgan can continue to effect change may depend on the ability of its two co-heads to continue to work together and communicate their goals effectively. Some power-sharing arrangements have been notoriously unsuccessful, the most visible recent example being the falling out of Citigroup Inc.'s co-CEOs, Sanford Weill and John Reed.
Shaw Lively, research manager of online financial services at International Data Corp. in Framingham, Mass., said LabMorgan's co-head structure could cause difficulties down the road.
Though the arrangement appears complementary for now, "it is difficult to have two people sharing a continuing vision over time," Mr. Lively said. "There are opportunities for divergences to occur. It is too early to really tell how the integration is playing out. They haven't been together long enough for the family units to start squabbling. They are still in the glow of 'it's bigger and better, and it's going to be great.' "
LabMorgan acts as a venture capital firm by investing in new companies whose technology its parent can use. It has more than $500 million invested in 65 companies.
Mr. Rohatyn said the unit's biggest strength in helping new companies may be its "knowledge-management capability," the ability to create new points of knowledge. The winning financial services companies will have this ability, much as consulting firms do today, he said.
However, "consulting firms don't have financial capital to leverage," Mr. Rohatyn said. "We have financial capital to leverage and will add the intellectual capital."
LabMorgan's growing intellectual capital is evident to some companies in which it has invested.
Neil Goldman, managing partner at Capital IQ, the recipient of the new LabMorgan's first investment, said it has proven to be an effective sounding board for evolving technology, marketing, and business strategies. The combined unit has broader knowledge than either of the individual units could boast, he said.
LabMorgan is "unique in that they have many, many people whose sole responsibility is to enhance their portfolio," Mr. Goldman said.
Rick McVey, chief executive officer of Market Axess, a New York electronic bond trading firm and a former managing director at J.P. Morgan, said LabMorgan is a "resource we can regularly call on to get critical mass to get things done quickly."
Though other Market Axess backers, including Bank of America Corp., ABN Amro Holding NV, Credit Suisse First Boston, and Deutsche Bank, have made comparable investments, none has been as intimately involved in incubating the company as LabMorgan, Mr. McVey said.
"Hundreds of qualified people can be brought to bear to help companies like Market Axess get things done in a couple of weeks where otherwise they might struggle for three or four months," he said. "A company of 70 people from time to time feels like a company of 150 people."
LabMorgan, for example, helped Market Axess arrange an acquisition in late January of another New York firm, Trading Edge Inc., Mr. McVey said. LabMorgan provided due diligence on Trading Edge's technology, as well as the financial resources to pull the two business models together, and it set up a coordinated business plan and public relations strategy, Mr. McVey said.
Harry Totonis, president and CEO of Kinexus Corp., an account aggregator for high-net-worth individuals, said LabMorgan has helped it get clients and develop a marketing strategy. Under the original LabMorgan's tutelage, Kinexus, formerly known as Witan Group, unveiled its new name Dec. 5.
LabMorgan "provides expertise on our board and sees opportunities for alliances or acquisitions," Mr. Totonis said.
Harry Milling, a financial services analyst at Morningstar Inc. in Chicago, offered a less rosy view of LabMorgan's potential.
"The J.P. Morgan Chase merger is the death knell of LabMorgan," he said. "At a time when J.P. Morgan Chase is undergoing massive restructuring to integrate the merger and when all investment banks are desperately trying to cut costs to preserve profits in this sharp market decline, I don't think a project like LabMorgan is really going to survive."
He predicted that LabMorgan, which he called a luxury, would be folded into the company's venture capital arm this year. "There aren't too many luxuries left, and I don't think it's very practical now," he said.
But Mr. O'Leary and Mr. Rohatyn said they are upbeat about their prospects.
"My initial reaction was that I loved the merger, first and foremost," said Mr. O'Leary, who has been through three megamergers in his career. "The chemistry was very good with Nick right away. We had a good, solid recognition that the two combined was a much more powerful entity."
