Multinational Corporations have been operating since the initiation of overseas trade. The corporations remained crucial components of the global business for a long period: hence, transforming into modern forms in the 17th and 18th centuries (Jeter & Chaney, 2010). This enabled them to come up with varied European-based monopolist systems especially the “British East India Company”. During that period, multinational corporations acted as civilization agents. This was vital for the commercial and industrial purposes in “America, Africa, and Asia” (Dunning &Lundan, 2008). By the end of the 19thcentury, it was clear that multinational corporations had improved communication. This allowed them to link the varied world markets; thus, improving global relations (Dunning &Lundan, 2008). Multinational corporations are currently powerful though most governments and consumers find them ambivalent. This is because the government claims that the corporations fail to consider the economic well-being of the society. Consequently, this analysis focuses on JP Morgan Chase and its acquisition ventures.
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Describe the selected acquisition
The focus of the analysis is JP Morgan chase’s acquisition of Bank One in 2004. JP Morgan chase is the oldest and largest famous financial institution in the world. It started in 1799 as a charter bank in New York City. JP Morgan chase operates in 60 countries. It ranks as the largest provider of financial services since it offers assets of $2 trillion. It is the third-largest bank in the U.S after Wells Fargo and the Bank of America. “JP Morgan, Bank of America, Citigroup and Wells Fargo” are the four big banks in the U.S (Jeter, &Chaney, 2010). It specializes in six business segments, which include the investment bank, retail services, card services, commercial banking, treasury, and related services (Davis & Wilson 2011). JP Morgan Chase acquired Bank One, which was the sixth leading bank with assets worth $290 billion. Bank One “had issued over 51 million credit cards, was operating in over 7 million retail households and over 20, 000 middle-market customers” (Jeter & Chaney, 2010). The bank had more than $175 investment assets around the world (Jeter & Chaney, 2010).
JP Morgan chase completed its acquisition process on July 1, 2004. The main reason that made the two banks merge was the need for a comprehensive new fiscal giant. Therefore, the JP Morgan chase ensured that it supplied daily newspapers with the aim of informing both the JP Morgan and Bank One employees on the proceedings towards the acquisition of bank one. In addition, JP Morgan chase created a discussion board on their website to receive relevant questions from their staff. This was a very effective step during the acquisition process because it indicated its thoughtful nature. The acquisition was beneficial to JP Morgan chase because it turned into the second leading bank holding entity in the U.S in terms of assets. In addition, the acquisition process was important to their financial system, consumers, the small businesses. However, they named the acquired company JP Morgan chase and co (Davis & Wilson 2011).
Accounting requirements for a business combination
A business combination emerges when an enterprise gets the net assets constituting a business or when it gets the equity interest. This pertains to either one or more entities; furthermore, it controls them. The accounting prerequisites of a business combination include fair value since it encourages the involvement of the valuation specialists, the management, and auditor of an organization. Keeping time is equally a requirement in a business combination. Additionally, defining the business is an important accounting requirement (Jeter & Chaney, 2010). Finally, considering the contingencies is fundamental because it measures the fair value, classifies asset, liability, and equity (Jeter & Chaney, 2010).
Challenges within the preparation of the financial statements for the consolidation of subsidiaries on the date of acquisition
Acquiring an established organization is characterized by varied challenges. This is because a thriving integration combines restores and converts processes. Several challenges are likely to occur when preparing the financial statement for the consolidation of subsidiaries on the date of acquisition. Initially, there would be a challenge concerning the choice because acquiring an organization is likely to bring different households together. Therefore, it would be difficult for the MJ Morgan chase to decide on what to retain, ignore and share from bank one. This process is mutual because the two involved banks discuss issues before coming up with a decision. They also formulate a systematic process of assessing the best option by considering the practical constraints and strategic goals (Jeter & Chaney, 2010). The valuation process is challenging because it is difficult to determine the worth of Bank One and devise the bidding price. The transaction process is also challenging as apparent in cash, stock, or the cash stock transaction. Finally, a challenge is seen during the financial reporting process.
Goodwill and Intangible Assets of the Business
The fusion of JP Morgan Chase and Bank One was essential. It allowed Morgan Chase to expand its influence in the universal banking market. It accessed retail markets where its presence was previously non-existent. Mergers and Acquisitions are significant profit drivers for the investment industry. This was the case for JP Morgan’s acquisition of Bank One (JP Morgan staffers get Bank one treatment, 2005). Additionally, the increase in the trading volumes and customer numbers have immensely benefited banks since they acquire inexpensive capital.
The unaudited proforma information shows the impact of amalgamating the financial components (assets and liabilities) of the two corporations. The unaudited goodwill amounts of JP Morgan and Bank One were $ 8.731 billion and $2.057 billion respectively as of June 2004 (J P Morgan Chase and Company, 2004). The sum of these two amounts will be $ 10.788, which will significantly increase the stake of JP Morgan in the banking industry. In addition, the figures of other intangibles are $ 7.399 for JP Morgan and $ 697 million for Bank One as of June 2004 (J P Morgan Chase and Company, 2004). Historically, it is evident that mergers and acquisitions work to the advantage of the acquirer. In this case, JP Morgan, which was the third bank in the world ranking, became second after this merger because of the addition of the intangible value of both businesses. Moreover, a corporation that acquires another firm boosts the client’s confidence in its future success.
Ownership, share ratio, and Capitalization of JP Morgan after the merger
JP Morgan Chase acquired Bank One that was its competitor in the banking business through a deal amounting to $ 58 billion as the purchase price (J P Morgan Chase and Company, 2004). William Harrison was Morgan Chase’s chief executive officer (CEO) while Bank One was headed by Jamie Dimon. After the acquisition, Morgan Chase became the central authority of the two banks. As such, it acts as the supervisory unit of the transactions of Bank One. Shortly after the merger, Williams transferred the leadership of JP Morgan to Jamie Dimon. This deal created a company with assets worth $ 1.1 trillion with a retail chain of 2300 branches worldwide (J P Morgan Chase and Company, 2004). During the acquisition, it was apparent that Bank One shareholders were to receive 1.32 JP Morgan shares for each share they own. Therefore, Bank One owners and stakeholders would acquire a larger per-share amount than their JP Morgan counterparts. Furthermore, the market capitalization of the two banks was $ 130 billion show. This amount was substantial. According to Faulkner, Teerikangas, and Joseph (2012), large capitalizations stocks especially worth $ 5 billion or more can qualify a corporation to be a blue-chip company. Corporations with large capitalization amounts may not be as successful as the smaller ones, but they tend to be stable and offer decent dividends. The Bank One bank would lose its mane and be incorporated under the JP Morgan and Chase and Co. tag; therefore, acquiring a subsidiary status.
Key areas of difference for the acquisition if IFRS was used instead of US GAAP and the materiality of difference to the profits of the combined entity
Differences would be seen in several areas If IFRS were used in the acquisition reporting between JP Morgan Chase and Bank One instead of the US GAAP. First, Instead of splitting the classification between the current and noncurrent components of the JP Morgan Chase, the IFRS process would have been noncurrent. Additionally, there would be differences in the goodwill when GAAP is used. Additionally, the goodwill and other additional assets would be reduced to zero. However, in IFRS, goodwill would be reduced to zero and other surplus assets ascribed to net profit or loss. The US GAAP applies the domestic federal statutory, but the IFRS method would have focused on applicable tax rates to the accounting process.
Finally, the US GAAP process lacked the definition for the segment result, but IFRS would have applied the defined segment (JP Morgan staffers get bank one treatment, 2005). The successful implementation of the process would have been witnessed if the JP Morgan chase could have used the IFRS method instead of the US GAAP. In addition, it could have assessed diverse issues such as tax, internal process, and cash management.
A radical transformation in the US banking industry was seen in the past century. This is best illustrated by the wave of mergers (Faulkner, Teerikangas & Joseph, 2012). For example, Travelers group acquired Citicorp to create Citigroup. This is the principal bank in the world. Furthermore, the Bank of America is a result of the acquisition. JP Morgan Chase wanted to emulate the efforts of these two banks; thus, consolidating its position in the banking market. Its progress has not been all rosy after this merger because of the volatile economic environment of the US. However, its acquisition of Bank One is the most successful in banking history. In addition, JP Morgan became the second largest banking institution after this merger. Bank One, which is a subsidiary, continues to assist JP Morgan to fulfill its economic objectives.
Davis, L. R., & Wilson, L. (2011). Estimating JPMorgan chase’s profits from the Madoff deposits. Risk Management and Insurance Review, 14(1), 107-119. Web.
Dunning, J. H., &Lundan, S. M. (2008).Multinational enterprises and the global economy. Cheltenham: Elgar.
Faulkner, D., Teerikangas, S & Joseph, R. (2012). The handbook of mergers and acquisitions. Oxford: Oxford University Press.
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Jeter, D., & Chaney, P. (2010). Advanced accounting: 2010 custom edition (4th ed.). Hoboken, NJ: John Wiley & Sons.
JP Morgan staffers get Bank one treatment. (2005). Wall Street Letter, 1-1. Web.
J P Morgan Chase and Company. (2004). United states Securities and Exchange Commission. Web.