The Wall Street Journal-20080117-Dimon May Be Hunting- J-P- Morgan CEO -Open- to Deals In the Credit-Crunched Jungle

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Dimon May Be Hunting; J.P. Morgan CEO 'Open' to Deals In the Credit-Crunched Jungle

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It's time to pounce for J.P. Morgan Chase & Co. Chief Executive James Dimon and other top bosses of financial companies that have avoided a serious battering from the credit crunch.

Emboldened by a healthy balance sheet and stock that yesterday vaulted J.P. Morgan ahead of Citigroup Inc. in market capitalization, Mr. Dimon is showing how aggressively some survivors of the continuing carnage are revving up their expansion ambitions, both through takeovers and pushing hard in businesses where rivals are in retreat.

Despite a 34% drop in fourth-quarter profit and tighter underwriting standards, J.P. Morgan said its mortgage-origination volume surged by about a third compared with a year earlier. Taking advantage of the free fall at many mortgage lenders, J.P. Morgan has boosted its share of the U.S. mortgage market to about 11% from 6% six months ago, according to Michael Cavanagh, the New York bank's chief financial officer.

But the real excitement likely is yet to come. After a three-year drive to slash costs and invest heavily in technology and core businesses, Mr. Dimon yesterday declared that the battered financial landscape "just may make it more likely" that J.P. Morgan will make acquisitions, as analysts and investors have widely anticipated.

"In terms of buying assets or buying companies, we are very open- minded," Mr. Dimon said in a conference call with analysts.

He gave few details. But when Mr. Dimon clinches a deal, it is likely to be a whopper. The 51-year-old banker wants to expand J.P. Morgan's retail footprint in high-growth markets like California and the Southeast, even though those places have been hit hard by the housing downturn.

Mr. Dimon has long coveted institutions like Atlanta's SunTrust Banks Inc. and Washington Mutual Inc. of Seattle. Shares of both those banks have fallen sharply since the credit crunch struck in August, making them potentially cheaper targets. Washington Mutual, the country's biggest thrift, has been hit especially hard by its exposure to the mortgage industry.

With so many Wall Street firms on the ropes, Mr. Dimon might even be tempted to take a hard look at firms such as Morgan Stanley and Bear Stearns Cos., either for specific assets or something even bigger. Mr. Dimon and other J.P. Morgan executives have long played down the notion of pursuing a big investment-banking deal.

While no blockbusters have happened yet, a handful of other financial institutions also are in a strong position to capitalize on their success in generally avoiding the land mines blowing up around their competitors.

Goldman Sachs Group Inc., fresh off record profits in its latest fiscal year, has made a handful of mortgage-related acquisitions. Last month, Goldman bought Litton Loan Servicing LP, a mortgage-servicing company, for roughly $500 million, according to people familiar with the situation. Recently, Goldman completed the purchase of Money Partners Ltd., a mortgage lender in the United Kingdom that expands Goldman's reach in the European mortgage market.

Regional bank Wells Fargo & Co. has acquired three smaller banks in the past six months. The latest: a deal announced Monday to buy United Bancorp Inc. of Wyoming. Financial terms weren't disclosed. "We'd like to do more of these same kinds of transactions," said Howard Atkins, Wells Fargo's chief financial officer. "This is the kind of environment that makes that possible."

Similarly, executives in the private-equity market expect a shake- out in that industry, as weakened firms look for a haven among stronger performers.

Even the hardiest survivors have seen their stock prices decline, with Goldman shares down 21% and J.P. Morgan down 22% from their 52- week highs. That weakens their currency for making stock deals.

But the stock prices of many potential targets are in much worse shape. Bank of America Corp. Chairman and CEO Kenneth D. Lewis, who struck a deal last week to purchase Countrywide Financial Corp. for $4 billion in stock, said he was interested in buying the mortgage lender for years but the price was too rich.

When Countrywide cratered, "it was an opportunity that came," Mr. Lewis said in a Tuesday interview. "We knew it would be the mother of all due diligences. But if things were good, we'd be trying to justify a $26 price" per share, instead of the roughly $7 a share being paid by the Charlotte, N.C., bank.

Mr. Dimon revels in the challenges that come with putting companies together. After joining J.P. Morgan in 2004 as part of its $58 billion acquisition of Chicago's Bank One Corp., Mr. Dimon dove head-first into integrating the banks. Although investors initially feared that he would quickly pursue another transaction, Mr. Dimon has spent the past couple of years overhauling the bank's operations and stressing its need to grow from within -- and not to rely on acquisitions.

Though J.P. Morgan is considered to be far better positioned than some of its rivals, its fourth-quarter results showed it isn't immune from the distress hitting the financial-services sector. Fourth- quarter earnings fell to $2.97 billion, or 86 cents a share, from $4.5 billion, or $1.26 a share a year earlier. Revenue rose 7% to $17.4 billion.

The bank also took a $1.3 billion write-down for mortgage-related investments and set aside $2.3 billion to cover soured loans, particularly in its home-equity and credit-card businesses.

Still, those figures are far smaller than other Wall Street firms. Earlier this week, for example, Citigroup took an $18.1 billion write- down on mortgage-related investments and set aside $4.1.billion to cover bad loans.

A spokesman for J.P. Morgan declined further comment on acquisition activity. Mr. Dimon also dismissed the notion that the bank would hesitate to buy troubled assets, saying that any decisions would depend on the outcome of due diligence.

J.P. Morgan investors showed little worry about the potential that the company will pursue another acquisition. Yesterday, shares of the bank jumped about 5.8%, or $2.26, to $41.43 a share in 4 p.m. composite trading on the New York Stock Exchange. In afternoon trading, J.P. Morgan had a market capitalization of about $144 billion, compared with Citigroup's $132 billion, making J.P. Morgan the second-largest U.S. bank behind Bank of America. Citigroup still is by far the largest in assets.

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Kate Kelly, Valerie Bauerlein and Dennis K. Berman contributed to this article.

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