Filed under: Deals, Rumors, Management, Rants and raves, Competitive strategy, JPMorgan Chase (JPM), Washington Mutual (WM), Wells Fargo (WFC)
Yesterday, wearing my investor hat, developer hat, architect’s hat, business owner’s hat and strategic thinking cap, I wrote about the various scenarios that might make sense for either J. P. Morgan Chase & Co. (NYSE: JPM) or Wells Fargo & Company (NYSE: WFC) to acquire Washington Mutual, Inc. (NYSE: WM).
Giving this further thought and drawing on some of how this could play out from yesterday’s post I am wondering why this possible deal is not turning to frenzy. Perhaps all the parties are just playing hard to get. Maybe JPM and WFC have proved to be superior navigators than most other big financial companies and that they fear being shipwrecked on the rocks of a Washington Mutual.
If I’m Chase management, this deal makes too much sense to let pass. Adding WaMu’s west coast footprint advances Chase goals in a fraction of the time it would take to build out a comparable branch network and at great savings. Add in the customers base and service operations minus all the overlapping departments and this is a winner. All that needs to be done is get to the bottom line and do the deal. Bankers should understand the time value of money and get on with it.
The opportunity for Chase is very clear. Wells on the other hand might feel that more organic growth and more methodical steps is the prudent path to continued success. That is perfectly understandable, but might be overly cautious in a very competitive environment. You either move forward or backward, you cannot stay in the same place.
Wells Fargo would benefit greatly from the increased scale and WaMu would benefit tremendously from better management, something that seems to have been degraded at WaMu over time. I think the institutional culture is a much better fit than JPM/WM would be so the transition would be smoother.
While JPM would benefit from not having the costs of new construction (mostly signage initially) WFC would actually be able to sell off some valuable real estate and recoup much of its up front costs. In many cases the WaMu branches might be superior situated than the WFC, so that the WFC branch might be the one to sell off.
I also think if Wells Fargo fails to act, they’ll have taken a major action just the same. Joining forces with WaMu would make a very formidable competitor for Chase or anyone else. Chase ($148 billion cap) is currently bigger than Wells ($107 billion cap), but adding WaMu’s $15 billion scales them up nicely. I think the Wells-WaMu combination is much better and offers greater rewards and opportunity.
Washington Mutual is probably worth much more then the current Wall Street appraisal but as long as it is floundering it won’t be appreciated. Washington Mutual should be stoking the M&A fire at full blast.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.
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