Orders issued under Bank Holding Company Act

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

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As noted above, JP Morgan states that approximately half of its national business line deposits are subject to practical restrictions that constrain the organization's ability to use the deposits to support general banking activities. Some of these deposits are maintained in volatile investment accounts. Other national business line deposits are used to fund collateral requirements related to the deposits or are regularly extended by JP Morgan Bank to depositors as overdraft loans or other forms of credit. JP Morgan also states that the deposit balances held by TSS's Treasury Services unit are sufficient to fund only part of the credit demands of the unit's customers.

There also is no evidence in the record that the national business line deposits were moved to Houston or from another branch in an attempt to manipulate the SOD data used for competitive analyses by the appropriate federal supervisory agency. Rather, JP Morgan has provided evidence to demonstrate that the national business line deposits were placed in the Main Houston Branch for business reasons unrelated to JP Morgan's efforts to compete in Houston.

Based on this review, the Board concludes that the SOD data substantially overstate the effective presence of JP Morgan in the Houston banking market and thus overstate the competitive effect of this acquisition in the market. (23)

To account for this overstatement, the Board has considered the structural effects of the proposal after adjusting market deposits to exclude the portion of national business line deposits in the Main Houston Branch that are attributable to customers with mailing addresses outside the Houston banking market who also do not have a presence in the Houston banking market. The total amount of national business line deposits that are unrelated to Houston is approximately $17.2 billion. (24)

To account for the possibility that other market competitors might maintain similar deposits in the Houston banking market, the Board has considered several methods for approximating the amount of their national business line deposits and has excluded those deposits in analyzing the competitive effects of the proposal. After making these adjustments, the structural effects of the proposal in the Houston banking market are either within or moderately exceed the DOJ Merger Guidelines, depending on which method is used to adjust the competitors' deposits. (25)

The Board also examined other aspects of the structure of the Houston banking market. After consummation of the proposal, 85 depository institutions would compete in the Houston banking market, including three insured depository institutions that each would control more than 6 per-cent of market deposits. The second and third largest competitors in the market currently rank among the five largest bank holding companies nationally by asset data as of December 31, 2003. Two of JP Morgan's bank competitors also operate similar branch networks in the market.

In addition, the Houston banking market is attractive for entry by out-of-market competitors. Seven de novo banks have been chartered since 1998, and five existing banking organizations have entered the market through branching since 2000. Moreover, demographic data indicate that the Houston banking market will likely remain attractive for entry. The Houston MSA is the second most populous of 25 MSAs in Texas, and since 2000, its population growth has exceeded the average population growth in all other Texas MSAs.