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11,456 $m

Financial Services

Despite ongoing investigations, J.P. Morgan made a record USD $21.3 billion in profit in 2012. The brand has worked to overcome the stigma of “too big to fail,” trading losses that exceeded USD $6 billion after the “London Whale” fiasco was revealed in May 2012, and US Senate hearings citing top executives as the reason for the losses. Chairman and CEO Jamie Dimon addressed the case in a letter to shareholders, writing: “The London Whale was the stupidest and most embarrassing situation I have ever been a part of… I also want our shareholders to know that I take personal responsibility for what happened.” While Dimon’s efforts earned continued board support, many investors urged a split of the chairman and CEO positions, citing a conflict of interest and a need for oversight. The UK’s FCA and the US’s SEC investigations have led to USD $920 million in fines and penalties. Furthermore, two former employees have been indicted by a New York grand jury on charges relating to the trading loss. The former trader at the heart of the scandal, Bruno Iksil, nicknamed “The London Whale” because of the size of his holdings, is reportedly working with authorities and is unlikely to face charges. The next year will be a critical time for the brand. As Dimon wrote in a memo to staff, “If you don’t acknowledge mistakes, you can’t fix them and learn from them. So now, as in the past, we are recognizing our problems, rolling up our sleeves, and fixing them.”

.P. Morgan & Co.

Type	Subsidiary
Industry	Investment banking
Fate	Acquired by Chase Manhattan Bank in 2000
Founded	1871
Founder(s)	J. P. Morgan
Headquarters	New York City, New York, US
Employees	26,314 (2010)
Parent	JPMorgan Chase
Website	JPMorgan.com

J.P. Morgan & Co. was a commercial and investment banking institution based in the United States founded by J. Pierpont Morganand commonly known as the House of Morgan or simply Morgan.

Today, J.P. Morgan is the investment banking and private banking arm of JPMorgan Chase.

The firm is the direct predecessor of two of the largest banking institutions in the United States and globally, JPMorgan Chase andMorgan Stanley.

In 2000, J.P. Morgan was acquired by Chase Manhattan Bank to form JPMorgan Chase & Co., one of the largest global banking institutions. Today, the J.P. Morgan brand is used to market certain JPMorgan Chase wholesale businesses, including investment banking, commercial banking and asset management. The J.P. Morgan branding was revamped in 2008 to return to its more traditional appearance after several years of depicting the “Chase symbol to the right of a condensed and modernized “JPMorgan”.

Between 1959 and 1989, J.P. Morgan operated as the Morgan Guaranty Trust, following its merger with the Guaranty Trust Company of New York.

In 2008 JP Morgan was crowned Deal of the Year – Equity Market Deal of the Year at the 2008 ALB Japan Law Awards.

History[edit]

Early history[edit]

The origins of the firm date back to 1854 when Junius S. Morgan joined George Peabody & Co. (which became Peabody, Morgan & Co.), a London-based banking business headed by George Peabody. Junius took control of the firm, changing its name to J.S. Morgan & Co.in 1864 on Peabody’s retirement. Junius’s son, J. Pierpont Morgan, first apprenticed at Duncan, Sherman and Company in New York City, then founded his own firm with a cousin, J. Pierpont Morgan & Company, in 1862. J. Pierpont Morgan & Company traded in government bonds and foreign exchange. It also acted as an agent for Peabody’s. Junius, however, considered some of Pierpont’s ventures to be highly speculative. So, Pierpont took on a more senior partner and the firm was known first as Dabney, Morgan and Company (beginning in 1864), then Drexel, Morgan & Co. (in 1871). In these firms, Pierpont used his Peabody connection to bring British financial capital together with rapidly growing U.S. industrial firms, such as railroads, who needed financial capital.^[2] The Drexel of Drexel, Morgan & Co. was Philadelphia banker Anthony J. Drexel, founder of what is now Drexel University.^[3]

The House of Morgan[edit]

On Junius’ death in 1890, Pierpont Morgan took his place at J.S. Morgan and Company. After Drexel’s death, Drexel, Morgan reorganized in 1895 and became J.P. Morgan and Company, eventually becoming one of the most powerful banking companies in the world and helping to transform the United States from an economic novice into the strongest industrial power in the world at that time.^[4] It financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world’s first billion-dollar corporation. In 1895, it supplied the United States government with $62 million in gold to float a bond issue and restore the treasury surplus of $100 million. In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions that made it the dominant railroad transporter in New England.

Built in 1914, 23 Wall Street was known as “The Corner” and “The House of Morgan,” and for decades the bank’s headquarters was the most important address in American finance. At noon, on September 16, 1920, an anarchist bomb exploded in front of the bank, killing 38 and injuring 400. Shortly before the bomb went off, an unknown person placed a warning note in a mailbox at the corner of Cedar Street and Broadway. The warning read: “Remember we will not tolerate any longer. Free the political prisoners or it will be sure death for all of you. American Anarchists Fighters.” While theories abound about who was behind the Wall Street bombing and why they did it, after twenty years of investigation the FBI rendered the file inactive in 1940 without ever finding the perpetrators.

In August 1914, Henry P. Davison, a Morgan partner, traveled to the United Kingdom and made a deal with the Bank of England to make J.P. Morgan & Co. the sole underwriter of war bonds for the UK and France. The Bank of England became a fiscal agent of J.P. Morgan & Co., and vice versa. The company also invested in the suppliers of war equipment to Britain and France, thus profiting from the financing and purchasing activities of the two European governments.

During the early 1920s, J.P. Morgan & Co. was active in promoting banks in the southern hemisphere, including the Bank of Central and South America.

Glass–Steagall and Morgan Stanley[edit]

In 1933, the provisions of the Glass–Steagall Act forced J.P. Morgan & Co. to separate its investment banking from its commercial banking operations. J.P. Morgan & Co. chose to operate as a commercial bank, because after the stock market crash of 1929, investment banking was in some disrepute and commercial lending was perceived to be more the profitable and prestigious business. Additionally, many within J.P. Morgan believed that a change in the political climate would allow the company to resume its securities businesses but that it would be nearly impossible to reconstitute the bank if it were disassembled.

In 1935, after being barred from securities business for over a year, the heads of J.P. Morgan made the decision to spin off its investment banking operations. Two J.P. Morgan partners, Henry S. Morgan (son of Jack Morgan and grandson of J. Pierpont Morgan) and Harold Stanley, founded Morgan Stanley on September 16, 1935 with $6.6 million of nonvoting preferred stock from J.P. Morgan partners. At the beginning, Morgan Stanley‘s headquarters were at 2 Wall Street, just down the street from J.P. Morgan, and Morgan Stanley bankers routinely used 23 Wall Street when closing transactions.

Morgan Guaranty Trust[edit]

In the years following the spin-off of Morgan Stanley, the securities business proved robust, while the parent firm, which incorporated in 1940,^[5] was a little sleepy. By the 1950s J.P. Morgan was only a mid-size bank. In order to bolster its position, in 1959, J.P. Morgan merged with the Guaranty Trust Company of New York to form the Morgan Guaranty Trust Company. The two banks already had numerous relationships between them and had complementary characteristics as J.P. Morgan brought a prestigious name and high quality clients and bankers while Guaranty Trust brought a significant amount of capital. Although Guaranty Trust was nearly four times the size of J.P. Morgan at the time of the merger in 1959, J.P. Morgan was considered the buyer and nominal survivor and former J.P. Morgan employees were the primary managers of the merged company.

Return of J.P. Morgan & Co.[edit]

Ten years after the merger, Morgan Guaranty established a bank holding company called J.P. Morgan & Co. Inc., but continued to operate as Morgan Guaranty through the 1980s before beginning to migrate back to use of the J.P. Morgan brand. In 1988, the company once again began operating exclusively as J.P. Morgan & Co.

Also in the 1980s, J.P. Morgan along with other commercial banks pushed the envelope of product offerings toward investment banking, beginning with the issuance of commercial paper. In 1989, the Federal Reserve permitted J.P. Morgan to be the first commercial bank to underwrite a corporate debt offering^[6] In the 1990s, J.P. Morgan moved quickly to rebuild its investment banking operations and by the late 1990s would emerge as a top-five player in securities underwriting.

JPMorgan Chase[edit]

By the late 1990s, J.P. Morgan had emerged as a large but not dominant commercial and investment banking franchise with an attractive brand name and a strong presence in debt and equity securities underwriting. Beginning in 1998, J.P. Morgan openly discussed the possibility of a merger, and speculation of a pairing with banks including Goldman Sachs, Chase Manhattan Bank, Credit Suisse and Deutsche Bank AG was prevalent.^[7] Chase Manhattan had emerged as one of the largest and fastest growing commercial banks in the United States through a series of mergers over the previous decade. In 2000 Chase, which was looking for yet another transformational merger to improve its position in investment banking, merged with J.P. Morgan to form JPMorgan Chase & Co.^[8][9]

The combined JPMorgan Chase would become one of the largest banks both in the United States and globally offering a full complement of investment banking, commercial banking, retail banking, asset management, private banking and private equity businesses. In 2011, JPMorgan Asset Management was ranked number two in Institutional Investor’s Hedge Fund 100 ranking, with $54.2 billion in assets under management.^[10]

2012 Trading losses[edit]

Executives from JP Morgan Chase & Co were embroiled in the 2012 “London Whale” scandal, facing potential charges over a trading debacle that cost the bank more than $6.2 billion. The firm’s two former traders, Javier Martin-Artajo and Julien Grout, were accused of deliberately understating losses on trades in the firm’s books.