Chase Manhattan Cuts to the Chase

It restructures, lifts payout, splits shares


The chase is on at Chase Manhattan to rev up revenues and cut costs. Tuesday, the nation's No. 1 bank holding company, with over $365 billion in assets and 30 million customers, put numbers on its widely anticipated restructuring. Chase will reduce its worldwide work force by 4,500 jobs, or 6%, and take a first-quarter, after-tax charge of $320 million. At the same time, the company announced a 16% boost in its quarterly common dividend and proposed a 2-for-1 stock split.

All that sent Chase stock soaring by more than six points on the Big Board, to a 52-week high of 135 (Thursday it hit 139 1/8 ). Among happy investors was, no doubt, Michael Price, whose Mutual Shares fund complex (now part of Franklin Resources) owns over six million Chase shares. In a Q&A in these pages February 16, Price said he was "very impressed with how that organization has evolved since the Chemical Banking merger [two years ago] and where they are going." When the merger was disclosed, Chase stock was at 55; it closed out 1997 at 109 1/2. Price views Chase as a "very well-managed bank [that] continues to get better-managed."

The new dividend will be a pre-split 72 cents a share (36 cents post-split), versus 62 cents. It's payable April 30 to holders of record April 6. The 2-for-1 stock division is subject to shareowner approval at Chase's May 19 annual meeting. There are 421.5 million common shares outstanding, 60% of which are owned by institutions.

Chase plans to reinvest the $460 million in annual savings it envisions from its streamlining in businesses where it foresees rapid revenue growth, such as mortgage servicing, asset management and merger-and-acquisition counseling.

About half the job cuts will come through companywide layoffs over the next 18 months. The rest will result from attrition and the extension of a hiring freeze. However, a number of new positions will be created in connection with Chase's savings reinvestment in its growth businesses. (In February, J.P. Morgan said it would eliminate about 5% of its work force, while last fall, Citicorp, the second-largest U.S. bank, announced an 8.3% reduction.)

An additional aspect of Chase's restructuring steps was another round of speculation that it might move to acquire Merrill Lynch, the largest brokerage firm in the U.S., Donaldson Lufkin & Jenrette or PaineWebber. Chase in the past has been linked to all three.

According to First Call, Wall Street thinks Chase will earn $9.58 a share, on average, in 1998 and $10.71 in 1999, versus last year's $8.23. Chase's previously stated performance goals are a return on equity of at least 18%, annual revenue growth of 10% and double-digit growth in earnings. As for Chase's Asian exposure, at year-end '97, less than $100 million out of some $10 billion in loans was nonperforming, and much of that was short term and trade related.


  1. What are the different actions that Chase is taking to restructure itself?
  2. What does the stock price reaction to Chase's actions tell you about those actions?