NEW YORK (CNN/Money) - The rap on the management at J.P. Morgan Chase is that they haven't made a smart move in over a decade, but that's not entirely true.
They sold their Wall Street headquarters to Deutsche Bank in the summer of 2001 -- the sort of New York real estate move that could win you a job from Donald Trump.
Beyond that deal there is admittedly a falling off. Chase Manhattan went whole-hog funding tech and telecom startups in 1999 and 2000, calling the top of the bubble nearly perfectly. The late 2000 merger of Chase and J.P. Morgan, Gimme Credit analyst Kathy Shanley reminds us, was supposed to create a bank with an "unparalleled client base" (like Enron, Kmart and Global Crossing) and "leading global capabilities" (big exposures to places like Argentina).
And now Morgan Chase has gone and made a deal to buy consumer banking powerhouse Bank One just when the tapped-out U.S. consumer is set to hand over the reins of the U.S. economy to the business sector -- a shift which (until Wednesday's merger announcement) looked to put Morgan Chase in the catbird seat.
Furthermore, one of the big drivers of profits at consumer-oriented outfits like Bank One has been what's called the carry trade -- borrowing at the overnight rate the Federal Reserve is offering and lending at higher long-term rates. The difference between short and long term rates has rarely been as steep as it is now, and if that spread contracts, as many observers expect it will over the next year, Bank One is going to get a big chunk of its earnings power taken away.
So yes, holders of Morgan Chase stock should be worried -- it's easy to imagine it's going to have a little trouble digesting Bank One. But that doesn't mean that Morgan Chase has made yet another bungled move. Far from it.
First off, the 14.5 percent premium over Wednesday's close it is paying for Bank One pales in comparison to the 43 percent premium Bank of America paid for FleetBoston late last year. And Bank One is in far better shape than Fleet and comes with a great manager, Jamie Dimon.
More important, although the Bank One buy could potentially weigh on profits in the near term, over the long term the combined bank's more diversified revenue stream means that earnings are going to be less volatile.
The steadier a company's earnings are, the higher its valuation should go -- one reason why Citigroup commands a higher price-to-earnings ratio than its peers. It will take time, but in the end this deal may make Morgan Chase shareholders very happy.
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