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The Chemical Banking Corporation, a multibillion dollar bank holding company, began as a division of a New York City chemical manufacturer during the early 19th century. The company grew steadily through its long history, then more dramatically in the late 1980s and early 1990s when it became a superregional bank with holdings in New York, New Jersey, and Texas, in addition to maintaining its position as a money-center bank. In 1995 Chemical merged with the Chase Manhattan Corporation to form, under the Chase Manhattan name, the largest bank in the United States.
In the early 1820s a state-chartered bank in New York could not open its doors unless the New York State Assembly approved its charter. In those days, the legislature was hostile to banks, and obtaining a state charter could be difficult. Legislators were somewhat more inclined to grant charters to banks that were part of another business. When three New York City merchants--Balthazar P. Melick, Mark Spenser, and Geradus Post--decided to form a bank in 1823, they used a proven tactic to obtain their charter. On February 24, 1823, Melick, Spenser, and three other merchants incorporated the New York Chemical Manufacturing Company, headquartered in New York, to produce a variety of chemicals. The following year they successfully petitioned the New York State Assembly to allow the chemical company to amend its charter to permit the company to conduct banking activities. Chemical Bank was thus formed as a division of the New York Chemical Manufacturing Company on April 24, 1824, with Melick as its first president.
The bank initially served New York's mercantile community. At the time there were only 12 banks in New York City. Chemical Bank flourished in this relatively open market and soon offered older banks, like City Bank of New York (later Citibank), stiff competition. By 1829 Chemical had more than $216,000 in deposits, $20,000 reserved in specie, and retained earnings of more than $4,000. The chemical manufacturing division was also profitable, earning $50,000 a year by 1832.
In 1831 John Mason was selected to be the bank's second president. Mason, one of the wealthiest landowners in the city, was also president of the New York Harlem Railroad Company. In 1839 Isaac Jones became the third president of Chemical Bank upon Mason's death. In 1844 John Quinton Jones became the fourth president of Chemical Bank. Jones started working for the company as an agent of the chemical division and eventually became cashier of the bank--the equivalent of general manager--during the presidency of his cousin, Isaac Jones. John Q. Jones is noted for developing the weakened bank into a very strong institution. Also in 1844, when New York Chemical Manufacturing Company's original charter expired, the chemical company was liquidated and the company was reincorporated as a bank only, in accordance with more liberal banking laws passed in 1838. By 1851 the directors had sold all of the chemical division's inventories and real estate holdings and distributed the proceeds as dividends to shareholders.
In 1853 Chemical became a founding member of the New York Clearing House, an association of banks formed to help members clear banking transactions. During the recession of 1857 many banks newly incorporated under the banking act of 1838 were hit hard. Eighteen New York City banks closed in a single day; some 985 banks throughout the country closed during a six-month period. Chemical Bank earned the nickname "Old Bullion" during the crisis by continuing to redeem bank notes in specie for several days after all other financial institutions had started issuing paper loan certificates.
Even as Chemical Bank earned a reputation for soundness and foresight among grateful corporate and individual customers during the crisis, it earned quite another among its peers. Other banks regarded Chemical as ruthless and uncooperative--for a time, the bank was even suspended from the New York Clearing House. Chemical had agreed in principle that clearing house members ought to band together to protect weaker banks during times of crisis yet it refused to pool its specie reserves to soften the effects of the recession (some historians speculate that Chemical Bank was able to continue to distribute specie after the general suspension only because its largest customers had privately agreed not to withdraw their deposits).
During the Civil War, the country experienced two more recessions, one in 1861 and another in 1863, which were followed by more bank closings. Because of Chemical's reputation for stability, its deposits increased dramatically with each of these later crises. By 1871 its deposits had climbed to $6.08 million. In 1865 the bank acquired a national charter under the National Bank Act of 1865 as the Chemical National Bank of New York. Chemical began issuing government-backed national bank notes, the forerunner to paper money. The bank gained two further advantages from its national charter: it became a depository of federal funds and the required reserves of other national banks, and its reputation for soundness was enhanced by the higher liquidity and solvency requirements set by the federal government.
In 1878 George J. Williams became president following Jones's death. Williams, who like Jones had served as president of the New York Clearing House Association, was arguably the most successful banker in the United States. Chemical grew rapidly under Williams's leadership during the turbulent decades at the end of the century. In the face of fierce competition, he made Chemical a major correspondent banker and built it into one of the largest and strongest banks in North America.
In 1903 Williams died and was replaced as president by Joseph B. Martindale. By 1907 the bank had lost its competitive advantage and was losing accounts at a rate of about 100 per year. When Martindale died in 1917 the bank was no longer among even the top 100 in the country. It had faltered in part because Martindale was extremely conservative at a time when other major New York banks were aggressively diversifying into securities and international markets.
Upon Martindale's death Chemical's board of directors made Herbert K. Twitchell president. Percy H. Johnston, a young Kentucky banker, became vice-president in 1917. Johnston turned the company around very quickly. First the bank stopped losing customers, then, between September and December 1917, deposits rose from $35 million to $63 million. By 1919 Chemical's stock had increased from a dangerous low to almost $200 per share.
Johnston was made president in 1920 and took the long overdue step of diversifying the bank's services. He set up a trust department and engineered Chemical's first merger, in 1920, with Citizens National Bank, a small but wealthy New York commercial bank. As a result of the merger, Chemical's assets rose to $200 million, its capital to $4.5 million, its deposits to $140 million. In 1923 Chemical established its first branch bank. Also in the early 1920s, Johnston recruited a new management team. These managers--Frank Houston, Harold Helm, and N. Baxter Johnson--guided the company through the mid-1960s.
In the late 1920s Johnston decided to expand the company's trust business. The bank was reincorporated as a state bank in 1929 under the name Chemical Bank & Trust Company because New York State granted broader trust powers than were available to national banks. By then Chemical had 12 branches in Brooklyn and Manhattan, and in 1929 it opened its first overseas office, in London. Later that year Chemical merged with the United States Mortgage & Trust Company. After the merger, Johnston became Chemical's first chairman and John W. Platten, formerly president of United States Mortgage, replaced him as president.
Also in 1929, Johnston established two affiliates. The first, Chemical National Company, Inc., bought, sold, and underwrote securities. The second, Chemical National Association, Inc., was formed as a holding company. During the Great Depression Johnston was able to maintain a strong capital position by merging the two affiliates into the bank and managing assets carefully. During the early 1930s, when about 8,000 banks failed and many others struggled to remain solvent, Chemical Bank's deposits actually rose by 40 percent. Deposits continued to grow during the late 1930s and early 1940s, reaching the $1 billion mark by 1941.
In 1946 Johnston retired, and the following year Chairman Baxter Johnson and President Harold Helm brought about a merger with Continental Bank and Trust Company. This merger was the first in a series that helped increase the bank's assets from $1.35 billion in 1946 to $15 billion by 1972. The most important of these unions was Chemical's 1954 merger with the Corn Exchange Bank Trust Company to form Chemical Corn Exchange Bank. The merger brought Chemical 98 additional branches throughout New York City.
In the late 1950s, under Helm (now chairman) and new President Isaac Grainger, Chemical began expanding international operations. In 1958 its first international subsidiaries were formed, and in 1959 the company's first full-service international branch opened in London. Also in 1959, Chemical merged with New York Trust Company, which had a large trust and wholesale-banking business. In the early 1960s Chemical began to expand into New York's suburbs, opening branches on Long Island and in wealthy Westchester and Nassau Counties.
In 1968 Helm and President William S. Renschard, appointed in 1960, followed a trend started by Citibank. They formed a bank holding company, Chemical New York Corporation, to facilitate expansion into other financial areas. In 1971 the company was internally restructured to decentralize the activities of the bank and clearly mark out areas of responsibility.
Chemical's international operations grew significantly in the late 1960s and early 1970s under the leadership of Donald C. Platten (the grandson of former president John W. Platten). Platten became president in 1972 and chairman in 1973. His strategy was not to build a large network of international branches, which would make the company vulnerable to fluctuations in foreign economies, but to concentrate on establishing branches in key international money centers. Chemical established offices in the Bahamas and Frankfurt in 1969; in Zurich, Brussels, and Paris in 1971; and in Tokyo in 1972. By 1977 Chemical had added branches in Milan, Singapore, and Taiwan. It also expanded its international operations by purchasing a 30 percent interest in a London merchant bank in 1977 and participating in several ventures with financial institutions in Austria, the Philippines, and other countries.
From 1972 through 1977 Chemical again experienced a period of consistent growth. The bank not only increased the number of operations it controlled, but also diversified the services it offered to both corporate and individual customers. One of Chemical's main objectives was to develop a broad base of fee-generating services that would be unaffected by interest rate fluctuations. Another was to earn a reputation as a progressive, result-oriented bank. Acquisitions continued during this period. In 1975 Chemical acquired Security National Bank, with its large Long Island branch network. Other important acquisitions at this time included several rural New York banks, a finance company with branches in 11 states, two investment-advisory firms, and a mortgage company. The company also formed a real estate-financing subsidiary, Chemical Realty Company, during this period and a wholesale bank in Delaware. One of Chemical's most popular innovations was ChemLink, a computerized system that enabled corporations to transfer funds anywhere and to have instant access to their funds worldwide.
In 1980 Platten and Chemical President Norborne Berkeley began restructuring the company's nonconsumer banking operations. Independent divisions were set up to operate the company's three largest sectors: multinational corporations, large domestic corporations, and middle-market businesses. This effort to streamline operations and cut out marginal businesses was necessary because, though Chemical had grown steadily during the past 30 years, it had failed to establish a niche in the industry and its overall performance had been unspectacular. What Chemical needed was to create a corporate image to distinguish it from other New York banks.
In 1982 Chemical made its first move to establish a corporate image. The company announced an agreement to merge with Florida National Banks of Florida, Inc., as soon as interstate banking between the two states was permitted. Platten and Chemical President Walter V. Shipley were immediately embroiled in a battle with Southeast Banking Corporation, a major competitor of Florida National Banks that wanted to pursue its own takeover bid. Following lawsuits, countersuits, and stockholder actions, the combat ended in a draw; Southeast would get the Florida National Bank branches and Chemical got the remainder of the company's business, giving it a foothold in the lucrative Florida market. This deal helped Chemical gain a reputation as a daring and slightly unconventional player in the financial world. In 1982 the bank also introduced Pronto, an electronic home banking system for consumers and small businesses. And in 1985 Chemical, AT&T, Bank of America, and Time, Inc., formed a joint venture called Covidea to provide electronic services.
In 1986 Chemical celebrated its tenth consecutive year of earnings growth by announcing another merger agreement, again with a company whose market was outside Chemical's traditional sphere of operations. This time the merger partner was a New Jersey bank holding company, Horizon Bancorp. Again, the actual merger had to wait until interstate banking between New York and New Jersey was allowed. The merger finally took place in January 1989, and Horizon was renamed Chemical Bank New Jersey. Meanwhile, Chemical turned to the acquisition of Texas Commerce Bankshares. This merger, effective in May 1987, was the largest interstate banking merger in U.S. history to date and allowed Chemical to expand into yet another major banking market. Texas Commerce was one of the largest bank holding companies in the Southwest, had the largest affiliate system in Texas, and was certainly the best capitalized of the major Texas banks.
As Chemical expanded through these mergers, it also suffered aftereffects from the crazed loan environment of the 1980s. Late in the decade Chemical was hit hard in loan losses from Third World borrowers, especially Argentina and Brazil. At the same time, the myriad, shaky real estate deals made in the United States in the 1980s came back to haunt Chemical (and many other banks). By 1991 Chemical's delinquent real-estate loans mounted to $1 billion out of the $6.7 billion total. With competition increasing in the banking industry, Chemical needed to take dramatic action to hold off its rivals.
Chemical's chairman and CEO, Walter V. Shipley, engineered just such a move with the 1991 merger of Chemical with Manufacturers Hanover Corp. Called the first major bank merger among equals and the biggest bank merger in U.S. history to date, it brought together the nation's sixth- and ninth-largest banks into what became the nation's second-largest bank, behind only Citicorp, with assets of $135 billion. The merger also marked the beginning of an unprecedented era of bank consolidation that would see several mergers dwarf even the Chemical-Manufacturers merger.
The new institution retained the Chemical name, but it would initially be headed by Manufacturers chairman John McGillicuddy, who under the terms of the merger served as chairman and CEO of the new Chemical through the end of 1993, after which Shipley took over. Each of the banks boasted of large retail banking networks in New York; merged together, Chemical achieved cost savings by closing redundant branches and eliminating jobs. Over the next few years, 6,200 employees lost their jobs and $750 million in costs were cut each year. While assets grew slowly, reaching $149.89 billion in 1993, Chemical improved its profitability through these cost savings, increasing its return on assets from 0.3 percent in 1990 to 1.11 percent in 1993 and its return on equity from 5.94 percent in 1990 to 16.7 percent in 1993.
Chemical also sought to improve its strengthening operations and pull out of markets where it could not compete in the heightened competitive climate of banking in the 1990s. The bank bolstered itself in Texas when it purchased the assets of the failed First City Bancorp in 1992 and added Ameritrust Texas Corporation in a $130 million 1993 deal. With such moves, Chemical became the leading corporate bank in Texas.
Yet Chemical trailed retail banking competition in upstate New York. In 1992 it decided to abandon that market and sold its upstate branches to Fleet Bank of New York. Chemical also pulled out of New Jersey in 1995, a market it had entered only nine years earlier. Early in 1995 it sold 84 branches in southern and central New Jersey to PNC Bank Corp. for $504 million. In 1993 Chemical had received permission from the Federal Reserve to underwrite corporate bonds, and the bank aimed to become a major underwriter of below-investment-grade debt within a few years.
While Shipley returned to the helm and Chemical's merger with Manufacturers paid dividends, the U.S. banking industry was undergoing consolidation at a frenzied pace. In the first six months of 1995, for example, 100 bank mergers were announced with a total value of $37.7 billion. With competitive pressures reheating, Shipley turned again to the merger strategy to keep Chemical near the top of the banking industry. In late August 1995 Chemical and the Chase Manhattan Corporation announced a $10 billion stock-swap merger. This largest bank merger in U.S. history to date created the top U.S. bank with assets of $297 billion and a bank with $20 billion in equity to invest, the fourth-largest amount in the world. The new institution took the Chase Manhattan name, with Shipley serving as chairman and CEO and Chase's chairman Thomas G. Labrecque acting as president and chief operating officer.
The Chemical-Chase merger was similar to the Chemical-Manufacturers merger in that the two banks had numerous overlapping areas of operations that could serve as bases for cost cutting. Over the next three years the new Chase planned to eliminate 12,000 employees and $1.5 billion in costs. Managing this megamerger will surely dominate the operations of Chase/Chemical throughout the rest of the 1990s.
Principal Subsidiaries: Albuquerque Capital Management, Inc.; Bach Holding Corporation; Brown & Company Securities Corporation; CBC-U.S.A. Inc.; Chatham Ventures, Inc.; ChemAdvertising, Inc.; ChemSel, Inc.; Chemical Bank; Chemical Bank, National Association; Chemical Bank & Trust Company of Florida N.A.; Chemical Business Credit Corp.; Chemical Capital Corporation; Chemical Equity Incorporated; Chemical Financial Management Corp.; Chemical Financial Services Corporation, Ltd.; Chemical First State Corporation; Chemical Futures, Inc.; Chemical Futures Management, Inc.; Chemical Futures & Options, Inc.; Chemical International Securities Corp.; Chemical Investments Inc.; Chemical Mortgage Securities, Inc.; Chemical New Jersey Corporation; Chemical New Jersey Holdings, Inc.; Chemical New York, Inc.; Chemical Real Holdings, Inc.; Chemical Realty Corp.; Chemical Securities Inc.; Chemical Technologies Corporation; The Chemical Investment Group Ltd.; The CIT Group Holdings, Inc.; Manufacturers Hanover Trust Company; Manufacturers Hanover Venture Capital; MH Leasing International; New York Switch Corporation (12.62%); Offshore Equities, Inc.; The Portfolio Group, Inc.; Pronto, Inc.; Texas Commerce BancShares, Inc.; Van Deventer & Hoch; Bank of New Providence, Limited (Bahamas); SA Manufacturers Hanover Bank NV (Belgium); Court Square Financial, Ltd. (Bermuda); Banco Norchem, S.A. (Brazil); Chemical Administracao e Consultoria Economico Financeira Ltda. (Brazil); Chemical Commercio e Servicos Ltda. (Brazil); Noroeste Chemical S.A. Arrendamento Mercantil Norchem (Brazil); Chemical Bank Canada; Manufacturers Hanover Bank Canada Ltd.; Chemical Bank & Howard de Walden Limited (Channel Islands); Chemical Custody (Guernsey) Limited (Channel Islands); Chemical Investments (Guernsey) Limited (Channel Islands); Manufacturers Hanover Banque Nordique (France); CB Beteiligungs Und Verwaltungsgesellschaft MbH (Germany); Unterstuztungs Gesellschaft MbH der Chemical Bank (Germany); Chemical Asia Ltd. (Hong Kong); Manufacturers Hanover Asia Ltd. (Hong Kong); Chemical Trust and Banking Company Limited (Japan); Manufacturers Hanover Ltd. (Japan); Libmar Three, Inc. (Liberia); Libmar Four, Inc. (Liberia); Libmar Six, Inc. (Liberia); Marpan One, Inc. (Panama); Marpan Two, Inc. (Panama); Chemco Finance Singapore Limited; Chemical Securities Singapore Pte. Ltd.; Manufacturers Hanover Trust Company, Seoul Branch (South Korea); Chemical Servicios Financieros, S.A. (Spain); Manufacturers Hanover Trust, Sweden; Manufacturers Hanover (Suisse) S.A. (Switzerland); Manufacturers Hanover Trust Company, Geneva Branch (Switzerland); Manufacturers Hanover Trust Company, Zurich Branch (Switzerland); Chemical Bank (U.K.) Holdings Limited; Manufacturers Hanover Executor & Trustee Co. Ltd. (U.K.); Manufacturers Hanover Export Finance Ltd. (U.K.); Manufacturers Hanover Finance Ltd. (U.K.); Manufacturers Hanover Leasing Corporation, U.K. Representative Office; Manufacturers Hanover Ltd. (U.K.); Manufacturers Hanover Property Services Ltd. (U.K.).