Not paying it forward, just throwing it forward

I offer this with the caveat that I have assembled these facts in only a couple of hours of research and a history from my own memory of having watched all of this, and followed the bouncing bank ball.  The story is essential accurate, but isn't represented to be a thorough and complete examination.

Early today, Guy sent me a portion of an article from the New York Times that points out JP Morgan Chase may have made over $12,000,000,000 in profits last year, but that they are losing a bunch of money on their consumer credit operation.

Chase’s consumer businesses, however, are still hemorrhaging money. Chase Card Services, its big credit card unit, lost $2.23 billion in 2009 and is unlikely to turn a profit this year. Chase retail services eked out a $93 million profit for 2009, though it posted $399 million annual loss in the fourth quarter. To try to stop the bleeding, the bank agreed to temporarily modify about 600,000 mortgages. Only about 89,000 of those adjustments have been made permanent.

Here's the thing - Chase, back when it was Chemical and Chase (does anyone remember that Chemical acquired Chase Manhattan to cover over their own dreadful reputation in 1996?) had very little in the way of credit card operations.

Bank One "merged" with Chase in 2004. It was running for cover because of .. losses in its card services unit. At the time, Bank One was the largest credit card issuer in the country (I think - if not THE largest, one of the largest). It became that by swallowing up First USA - which WAS an "innovator" and the fourth largest issuer of Visa and MasterCard.

Why did it buy First USA? First USA was up to its earrings in desperation.

First USA was founded as MNet in 1985 - a division of MCorp, which was originally the Mercantile Trust Company of Dallas, Texas. MCorp (and its banking subsidiary MBank) aggressively expanded during the initial go-go years of the 1980s, and established a huge credit card operation, issuing over 1.3 Million credit cards.

This will be amusing and important in a moment, but the banking operations of MBank were sold to Bank One for.. a bag of oranges in the late 1980s

MCorp, its growth dampened by over expansion, sold its best assets (is this not the most oft repeated story in American business? Expand wildly, mostly on borrowed money, sell off the best elements in desperation, then what's left folds up like a cheap tent) and the first to go was its highly profitable credit card business. Sold to Lomas and Nettleton (another storied name, lost to history) it became Lomas Bank, and started buying up everything that was issuing credit cards. Bright Banc (I haven't thought of them in twenty years) and Dollar Dry Dock were swallowed up and then .. wait for it .. Lomas ran into financial trouble and .. sold off Lomas Bank to a spin off, financed by Merrill - and run by the SAME EXECUTIVES THAT MADE THIS.. oh, I can't go on.

Now, they're called First USA. And they're the 13th largest issuer of credit cards. But, they have no depository bank upon which to build their massive issue of unsecured debt. AND, they represent the beginning of the sub-prime curve, Bright Banc having been one of the first issuers of First Premier type, nearly 100% APR credit cards to people with atrocious credit.

They owed $2.1 Billion in 1992 (when that really meant something - about $3.2 Billion in 2009 dollars). So, they raised money - in the highly fashionable way of selling a very small portion of the outstanding stock for a whale of a lot of money, making their own holdings immensely valuable. Then, they can release the un-offered stock into the market at the "market" price, reaping huge profits.

First USA focused on people who carried large balances, rather than paying them down each month. They introduced variable rate credit cards. In 1994, they were huge. The financial media spoke of them in divine terms.

Maybe you remember that Bank One was a merged bank of Bank One (Ohio) and FirstChicagoNBD (which was itself a combination of four of the largest banks in Detroit and Chicago).

I will let this quote demonstrate that First USA was a black hole by 1997:

In its decision, the Court held that Old Banc One Shareholders who purchased their stock after the August 1998 Prospectus was disseminated would have been more likely to vote against the merger had information regarding problems plaintiffs allege at Banc One's credit card division, First USA Bank, N.A., been disclosed before the merger.

Hey, so that court decision was in 2004. Guess what else happened then?

Bank One sold itself to Chase.

Chase, known for conservative management, acquired the leading combined "go go" big bank in the country, including their enormous sucking sound known as "Bank One Card Services".

Then, just to make SURE that they were well positioned, they acquired Washington Mutual, the owners of Long Beach Mortgage (one of the largest sub-prime mortgage lenders) and Providian Financial (one of the largest sub-prime credit card issuers).

Is it any surprise at all that Chase is "hemorrhaging money"?

Let's review:

• 
  
• MBank, which exploded in expansion, failed.
• MNet became Lomas Bank, which exploded in expansion, and failed.
• MBank was given to Bank One Ohio for less than the physical plant asset value.
• Texas Commerce Bank, exposed to huge loan losses in the oil market crash of the mid 1980's, sold itself to Chemical Bank.
• FirstCity, which failed TWICE under the weight of enormous loans made in the energy industry, had the largest non-manufacturer auto loan business in the country.
• Chemical Bank (still called Texas Commerce in Texas) acquired all of the assets of FirstCity.
• Washington Mutual acquires Home Savings and expands to be the largest Savings and Loan in the country, competing directly against the huge "money center" banks (Citi, Chase, Wells, NCNB/Nations)
• Chemical Bank, which had made huge loans to LDCs (Latin America, at high, variable rates of interest), causing political unrest (one must ask ones' self whether illegal immigration from Mexico would have occurred in the absence of Citibank and Chemical's massive loans to Mexico in the 1970s and 1980s that Mexico couldn't repay) acquired Chase Manhattan to gain Chase's pristine reputation.
• Bank One, owner of First USA and MBank LIES to persuade FirstChicagoNBD shareholders to merge with it, providing almost seven years of cover for the credit card mess
• Bank One, including FirstChicago "merges" with Chase nee Chemical.
• Chase acquires Washington Mutual.

Who's going to acquire Chase?  Note that I don't even discuss Chase's recent acquisition of Bearn Stearns.

How many times has the taxpayer bailed out this behemoth of  over-expansion, risky lending, directors and "investment banks" profiting for themselves at the expense of "regular" stockholders?

Why is having megalithic financial institutions like this sensible?

P.S. - Just as with the seizure/closure of MBank, the seizure/closure of Washington Mutual has shareholders suing to regain some value for their lost stock positions, claiming that the FDIC acted to benefit Chase, rather than shareholders.  Give it six years.

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