Orders issued under Bank Holding Company Act

Federal Reserve Bulletin,  Summer, 2004  by Robert DeV. Frierson

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TSS has three business units: Institutional Trust Services, Investor Services, and Treasury Services. The TSS business units provide financial services, primarily to larger corporate customers located throughout the United States, Europe, and Asia. As of June 30, 2003, the TSS Treasury Services business unit accounted for $11.2 billion of the deposits booked to the Main Houston Branch. The TSS Investor Services and Institutional Trust Services business units accounted for $7.2 billion and $605 million, respectively, of the deposits maintained at the Main Houston branch. JP Morgan's investment banking business controls $718.5 million in deposits at the Main Houston Branch, and mortgage escrow deposits total $2.2 billion at the branch.

In conducting its competitive analysis in previous cases, the Board has adjusted the market deposits held by an applicant to exclude specied types of deposits only in rare situations in which evidence supported a finding that the excluded deposits were not, as a legal matter, available for use in that market, and data were available to make comparable adjustments to the market shares for all other market participants. (21) In light of the arguments and data provided by JP Morgan, the Board has conducted a more detailed analysis of its measures for predicting the likely competitive effects of the transaction in this case. As an initial step, the Board examined several alternative measures of concentration in the Houston banking market, together with other relevant data. These alternative concentration measures for the market include HHIs based on the number of branches, the dollar amount of small business loan originations, and the dollar amount of mortgage loan originations. (22) For each of these measures, the increase in the HHI is less than 100 points and the resulting HHI is well below 1000. All changes in the alternative measures are modest and are indicative of a significantly smaller effect on competition than suggested by indices based on deposits. Accordingly, these alternative HHI calculations support the proposition that the SOD data overstate the competitive effects of the proposal in the Houston banking market.

Moreover, although JP Morgan holds $32.7 billion in deposits in the Houston banking market based on SOD data, its offices there hold only $5.2 billion in loans, by far the lowest loan-to-deposit ratio for JP Morgan in any banking market in Texas. This unusually low loan-to-deposit ratio is also consistent with the proposition that SOD deposit data significantly overstate JP Morgan's presence in the Houston banking market.

In addition, data for the Houston banking market indicate that the decision by JP Morgan to maintain national business line deposits there did not affect deposit interest rates in the banking market. An analysis of the pricing of retail banking products in the Houston banking market and other banking markets in Texas (Austin, Dallas, and San Antonio) revealed that, from January 1, 2000, through December 31, 2003, the average interest rate on deposits in the Houston Metropolitan Statistical Area ("MSA") did not deviate significantly from the average rates offered in three other Texas MSAs. In addition, the movement of these deposits to the Houston banking market has not caused a significant change in JP Morgan's pricing behavior. From January 1, 2000, through December 31, 2003, JP Morgan's interest rates on deposits did not significantly deviate from those rates offered by its competitors in the Houston MSA.