Bad Idea? Bank on it!

I hate to sound like Cassandra, but I think it would be a bad idea for the regulatory Powers That Be to allow the recently announced merger of J.P. Morgan and Bank One.

In the plus column, this merger creates America’s second largest financial institution, behind Citigroup (which you may or may not recall was the result of merging Citibank and Travellers, an insurance concern, in a merger only made possible by Phil Gramm ramming through legislation to make it legal). The combined entity will have 90 Million credit cards out there. They would also have about 2300 branches across the nation, combined, serving most areas of the country. The combined company expects to save several billion dollars over the next few years. But the benefits boil down to “bigger is better.” Oh, and lets not forget all the fees the investment bankers will earn on this and the cascade of mergers it is likely to start.

Now the minus column. The combined company will have to figure out how to consolidate 111 mutual funds undoubtedly with overlapping holdings and goals, and wildly divergent fee schedules. They will also have to get two very different management teams to work together — never an easy task. In the end, about 10,000 people will lose their jobs in the consolidation. The local economy in Chicago and New York City may well be adversely effected.

That is to say nothing of the impact on the customers: ordinary people like you and me who have credit cards, bank accounts, and brokerage accounts at Bank One, J.P. Morgan, and the companies they own. We can expect new credit card user agreements, and we cannot expect them to contain more favorable terms. We can also expect higher fees and interest rates, because competition is reduced. The end consumer will probably not benefit at all. Don’t try to bluff by saying how convenient it will be that you can go to “your” bank anywhere in the country. Bank laws vary enough from state to state that if you relocate, you will still be better off shopping for a new bank, unless you like dealing with a 5 day out-of-state check hold on your paycheck.

And frankly, everything I have said depends on things going well and working out as planned. It does not allow for what might happen when your credit card, bank, mortgage, and brokerage information end up in one place. It does not consider what might happen to the J.P. Morgan/Chase/Bank One mortgage portfolio should it turn out there really is a “housing bubble.” It assumes there is no creative accounting at either firm — and do not presume to say that banks are heavily regulated, not only because banks have been known to fail too, but also because energy and telecommunications are heavily regulated too.

Yet somehow you can bet this will be approved. And it won’t turn out as marvelously as everyone expected. Let’s hope it isn’t as bad as it could be.