As mergers between giant US banks spawn behemoths, it’s a case of eat or be eaten. But the appetite, for now, is for homegrown fare.

JP Morgan Chase’s $58bn takeover bid for Bank One will create, subject to approvals, the third US super bank, alongside Citigroup and the proposed merger between Bank of America and FleetBoston. The behemoth model now seems to be increasingly fashionable and this deal is likely to spark another round of consolidations, just as Sandy Weill did with his Citicorp/Travelers deal in the late 1990s.

Powerhouse born

For Bill Harrison, chairman and CEO of JP Morgan Chase, the transition from Chase through the takeover of JP Morgan in 2000 to Bank One in 2004 represents a period of tumultuous change and of rapidly shifting market realities. In 2000, a Wall Street powerhouse was created by blending Chase’s balance sheet muscle and JP Morgan’s investment banking talent.

At the time, this powerhouse model looked to be invulnerable but markets changed and volatile investment banking earnings took the gloss off Mr Harrison’s vision. JP Morgan Chase, armed with its balance sheet, created a broader product range but the past few years have shown that investment banking margins do not necessarily provide a platform for stable growth.

So, looking to the future, Mr Harrison needed further growth drivers that he did not have in his own retail or investment banking armoury. Bank One not only provides broader growth opportunities with its consumer and credit card franchises it gives Mr Harrison a made-to-measure successor in its CEO Jamie Dimon.

After building an investment banking powerhouse, Mr Harrison has been forced to build a new model, an all-encompassing behemoth.

More acquisitions

The creation of this new breed of super banks may help iron out earnings but by definition it will also lead to further acquisitions. Other major US banks, such as Wells Fargo, Wachovia and US Bancorp will need to become either acquirers or be acquired. But if investors are to be satisfied, the behemoths will have to focus on domestic US deals.

Major cross-border acquisitions by US banks seem less likely to create investor value, especially when there is still plenty of room for more consolidation in the US itself.

For better or worse, we are entering the age of the US super banks. They will dominate global bank listings but most of their activities are likely to be at home.

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