The Chase Manhattan Corporation

The Chase Manhattan Corporation

1 Chase Manhattan Plaza
New York, New York 10081
U.S.A.
(212) 552-2222

Public Company
Incorpored: 1969
Employees: 42,000
Assets: $97.46 billion
Stock Index: New York London Paris Tokyo Düsseldorf Frankfurt

In the 1931 movie Monkey Business, Groucho Marx’s character asks Alky Briggs, his gangster nemesis, “What’s the capital of South Dakota? What’s the capital of Chase Manhattan Bank?” Then, as now, Chase Manhattan’s capital happened to be quite a lot; today it is the second largest bank in the United States. It offers a wide range of financial services, its subsidiaries and branch offices ring the globe, and it has been a major player on Wall Street for more than 70 years. Groucho didn’t have to worry about whether or not his audience would recognize the reference, even during the Great Depression. In good times and bad, people have always recognized the Chase Manhattan name.

Chase Manhattan’s earliest predecessor, The Manhattan Company, was formed in 1799, ostensibly to supply New York with clean water to fight a yellow fever epidemic. However, its real purpose was to establish a bank. Organized by Aaron Burr to challenge the supremacy of the Bank of New York and the Bank of the United States, Burr had surreptitiously inserted a clause into the company’s charter authorizing it to engage in other businesses with any leftover capital. To no one’s surprise, the company soon discovered that the water-supply operation would not require all of its resources, and so the Bank of Manhattan Company was opened in 1799 at 40 Wall Street. The bank’s first president was Daniel Ludlow.

In 1808, the year Daniel Ludlow resigned, the company was allowed to sell the water operation to the City of New York and devote its energy to banking. From that time onward, the Bank of Manhattan flourished. The bank introduced several innovative banking practices, including the shady method by which it gained a charter. Its example spawned further corruption among other groups who sought incorporation; the construction of canals during the 1820s and 1830s or the building of railroads in the 1850s and 1860s often became the pretext for procuring a bank charter that might not otherwise have been granted.

Since the bank had virtually no restrictions in its charter, it was able to loan money to all kinds of people. The bank dealt with tradesmen, land speculators, and manufacturers as well as the New York state government. This open banking policy provided a great impetus for westward expansion in the United States during the mid- and late-19th century. By the turn of the century the Bank of Manhattan had established itself as one of the largest holders of individual depositor accounts. Its policy of providing personal banking services worked so well that, at the time of its merger with Chase in 1955, the Bank of Manhattan operated 67 branches throughout New York City and was widely regarded as one of the most successful and prestigious regional banks in America.

The other part of Chase Manhattan, the Chase National Bank, was established in New York in 1877 and named after Salmon P. Chase, secretary of the treasury under Abraham Lincoln. It was not until 1911, however, when Albert Henry Wiggin took over the leadership of the bank, that Chase developed into a power on Wall Street. In 1905, at the age of 36, Wiggin became the youngest vice president in the company’s history; by 1911 he was president of the bank and by 1917 the chairman of its board of directors.

Chase was a relatively small bank when Wiggin took over, but he soon began to transform it into one of the largest in the world. Wiggin did this by expanding the bank’s list of corporate accounts through the offer of more banking services, especially trust services. He helped to found Mercantile Trust in 1917, and in the same year organized Chase Securities Corporation to distribute and underwrite stocks and bonds. This affiliate soon became a major force in the equities markets. In addition, Wiggin established strong ties to big business by recruiting the bank’s directors from the most influential companies in the United States.

Wiggin’s greatest contribution to the bank was his arrangement of a series of mergers during the 1920s and early 1930s in which Chase absorbed seven major banks in New York City. The largest of those, the Equitable Trust Company, had more than $1 billion in resources when it was acquired in 1930. The eighth-largest bank in the United States at the time, it was owned by John D. Rockefeller and led by Rockefeller’s brother-in-law Winthrop Aldrich. Not long after the merger, Wiggin assumed the chairmanship of what was then the largest bank in the world.

In 1932, however, the leadership at Chase changed dramatically. Wiggin had used not only his own funds, but also those of the bank to engage in stock speculation, and that year was forced to resign. In the following years, Wiggin and a number of his close associates were disgraced by a congressional investigation that uncovered, among other transgressions, the use of affiliated companies to circumvent the laws restricting stock market transactions and the fact that, during the stock market crash Wiggin had made $4 million selling Chase stock short—using bank funds to do so.

Winthrop Aldrich directed the bank’s operations from the mid-1930s to the end of World War II, a period when Chase continued to expand and develop, becoming the first bank to open branches in both Germany and Japan after World War II. However, Aldrich knew that Chase was hampered in its domestic development because all of its consumer branches were located in Manhattan. The bank had always concentrated on corporate and foreign business and ignored innovations such as branch banking, leaving it in a weak position to capitalize on the prosperity of middle-class Americans during the postwar boom. And so in 1955, Aldrich arranged a merger between Chase and the Bank of Manhattan, at the time the nation’s 15th-largest bank, but more importantly one with an extensive branch network throughout New York City.

From the time of the merger between Chase and the Bank of Manhattan, there was a new driving force behind the bank’s activities: David Rockefeller. Rockefeller had joined Chase as the assistant manager of its foreign department after the war, becoming vice president by 1949. In the early 1950s, he was head of the bank’s metropolitan department; it was actually Rockefeller who advised Aldrich on the benefits of the merger with the Bank of Manhattan. With the merger complete, he was named executive vice president and given the responsibility for developing the largest bank in New York City. At the same time he was also appointed vice chairman of the executive committee. In 1969, he became chairman of the board of directors, the same year the Chase Manhattan Corporation was incorporated and the Chase Manhattan Bank N.A. became is wholly owned subsidiary.

As the head of Chase Manhattan, David Rockefeller soon became a major international power-broker. Never really interested in the day-to-day operations of the bank, he began to travel constantly, meeting with political and business leaders around the world. This high international profile led Rockefeller to use the bank in the service of what he thought was desirable American foreign policy; by becoming one of the pillars of the U.S. foreign-policy establishment, his influence on the Council of Foreign Relations and Trilateral Commission was very strong.

This close association between Chase and the prevailing U.S. political establishment inevitably drew the bank into controversy. In 1965, Chase’s decision to purchase a major share in the second-largest bank in South Africa provoked an intense campaign by civil rights groups to persuade institutions and individuals to withdraw their money from a firm that clearly supported the apartheid regime. And, in 1966, widespread protests were directed against the bank because of Rockefeller’s decision to open a Chase branch in Saigon. A strong supporter of American involvement in the Vietnam War, Rockefeller traveled to the southern capital of Vietnam to open the building personally; a sandstone fortress, it was designed to withstand mortar attacks and mine explosions.

David Rockefeller and Chase’s foreign controversies continued into the 1970s. The shah of Iran had been the bank’s best customer in the Middle East; Iran’s $2.5 billion in deposits from oil profits amounted to approximately 8% of Chase’s total deposits in 1975. When the shah fell from power in 1979, it was Rockefeller who, with Henry Kissinger, at that time the chairman of the firm’s international advisory committee, persuaded the Carter administration to allow him into the United States. When Iran tried to retaliate by removing its deposits from Chase to other banks, Rockefeller succeeded in convincing the government to freeze all Iranian assets in U.S. banks, the move that led to the seizure of hostages at the American Embassy in Teheran.

Despite Chase Manhattan’s power and influence in international finance, the 1970s were a difficult time for the bank. Chase lost significant domestic business as regional banks lessened their dependence on Chase Manhattan for their own growth and expansion; their burgeoning resources made it less important that they go to the “banker’s banker” for loans. In addition, Chase lost millions of dollars in bad loans to Latin American countries, which resulted in its being placed on the Federal Reserve’s list of “problem banks” that needed constant supervision. Although the company’s foreign income increased from one-half to two-thirds of its total income during this time—to nearly $4 billion—the bank had a hard time competing with Citibank’s aggressive strategy. Notwithstanding these problems, Chase remained the country’s third-largest bank, with 226 branches in New York City and 105 branches and 34 subsidiaries around the globe.

The 1980s ushered in a period of significant acquisitions for Chase. In 1984, the bank purchased Nederlandse Credietbank N.V., a Dutch bank headquartered in Amsterdam; in the same year it also purchased the Lincoln First Bank in Rochester, New York; in 1985, the bank bought six Ohio savings-and-loan institutions; and in 1986, Chase acquired Continental Bancor.

In 1981, David Rockefeller retired from his position at Chase. Willard C. Butcher, his hand-picked replacement, had been president and CEO of Chase, and succeeded him as chairman of the board. Butcher took up where his predecessor left off; Chase maintains a very high profile in international finance and still likes to see itself as a power-broker there.

But the most important problem for Chase Manhattan in the 1980s was a series of bad loans that had no equal in quantity or in magnitude in the bank’s history. It started in 1982, when Penn Square Bank collapsed after billions of dollars in unsecured loans that it had made to oil and natural gas interests in Oklahoma went sour. Chase purchased some of those loans, but moved quickly to write off many of them to prevent further financial damage. Chase has also been one of the most heavily exposed banks loaning money to Third World countries. On February 20, 1987 Brazil announced that it would suspend payment on its foreign debt and threw the money-center banks into a panic. In May, Chase added a whopping $1.6 billion to its loan loss reserves. As a result, it posted a loss of $894.5 million for 1987—the worst year for American banking since the Great Depression.

Battered by the Third World debt crisis and faced with strong competition from insurgent regional banks, Chase Manhattan has been sagging against the ropes in the late 1980s. Between 1986 and 1988, it reduced its workforce by 10%, or about 6,000 employees. In 1988 The New York Times speculated that the venerable banking giant might be a takeover candidate because of its depressed stock price and prestigious name. But “prestigious” is the word most worth keeping in mind here. Even in bad times, people recognize the Chase Manhattan name.

Principal Subsidiaries

Saudi Investment Bank; Chase AMP Bank Ltd. (Australia); Chase Manhattan Asia Limited (Hong Kong); Chase Manhattan Trust Company (Hong Kong) Ltd.; Chase Manhattan Investment Services (Hong Kong) Ltd.; Chase Manhattan Trust and Banking Co. (Japan) Ltd.; Chase Leasing (Japan) Ltd.; Amanah Merchant Bank Berhad (Malaysia); Chase Investment Bank (Singapore) Limited; Chase Manhattan Futures (U.K.) Ltd.; Chase Manhattan Capital Markets (U.K.) Ltd.; Chase Leasing Ltd. (United Kingdom); P.T. Chase Leasing Indonesia; Chase Manhattan Bank (Austria), A.G.; Chase Bank and Trust Co. (C.I.) Ltd. (Channel Islands); Chase Invest A/S (Denmark); Chase Manhattan S.A. (France); Chase Manhattan Bank Luxembourg, S.A.; Chase Manhattan Bank (Norway) A.S.; Chase Bank (Ireland) PLC; Chase Manhattan Bank España S.A.; Chase Manhattan Securities, S.A. (Spain); Chase Manhattan Bank (Switzerland); Chase Investment Bank Ltd. (United Kingdom); Chase Manhattan Milbank Ltd. (United Kingdom); Chase Manhattan Futures (U.K.) Ltd.; Chase Manhattan Gilts Ltd. (United Kingdom); Chase Manhattan Market Makers Ltd. (United Kingdom); Chase Manhattan Service Management Ltd. (United Kingdom); Libra Bank Pic. (United Kingdom); Financiere dTnvestissements et de Construction Immobiliere, (F.I.C.I.) (France); Chasefin-Chase Finanziaria, S.p.A. (Italy); Chase Investmenti Mobiliari S.p.A. (Italy); Chase Leasing S.A. (Spain); Chase Tade Finance Ltd. (United Kingdom); Chase Manhattan Trading, S.A. (Argentina); The Chase Manhattan Trust Corporation Limited (Bahamas); Banco Chase Manhattan, S.A.(Brazil); The Chase Manhattan Bank of Canada; Chase Manhattan Trust Cayman Ltd.; Inversiones Chase Manhattan Limitad (Chile); Chase Investment Bank (Panama) S.A.; Chase Manhattan Capital Markets Corp. of Puerto Rico; Chase Manhattan, S.A. Credito Financiamento Investimento (Brazil); Chase Bank AG (Germany); Chase Manhattan Overseas Finance Corp. N.V. (St. Maarten); Chase Manhattan Investment (Uruguay) S.A.; Chase Manhattan Leasing Canada, Ltd.; Chase Securities, Inc.; Chase Commercial Corp.; Chase Home Mortgage Corporation; Chase Investors Management Corp. New York; Chase Manhattan of California Thrift Corp.; Chase Manhattan Bank, N.A.; Chase Manhattan of Utah; Chase Bank of Ohio; Chase Manhattan Capital Markets Corp.; Chase Manhattan Financial Services, Inc.; Chase Bank of Maryland; Chase Manhattan Overseas Banking Corp.; Chase Manhattan Service Corp.; Chase Manhattan Leasing Company; Chase National Corporate Services, Inc.; Chase Lincoln First Bank, N.A.; Chase Trans-Info, Inc.; Chase Bank of Arizona; Chase Bank of Florida; Chase Bank International; Chase Manhattan Investment Holdings, Inc.; The Chase Manhattan Bank (USA), N.A.; Chase Trade, Inc.; Chase Auto Leasing Corp.; Chase Manhattan Financial Center, Inc.; Chase Manhattan Futures Corp.; Chase Manhattan Trust Co. of California, N.A.; Chase Access Services Corp.; Chase Automated Clearing House, Inc.; Chase Manhattan Thailand, Ltd.; Information and Services of Puerto Rico, Inc.; Chase/Clark Credit Company; Saudi Investment Bank.

Further Reading

Wilson, John Donald. The Chase: The Chase Manhattan Bank, N.A., 1945-1985, Boston, Harvard Business School Press, 1986.