Chemical Bank


Chemical Bank, headquartered in New York City, was the principal operating subsidiary of Chemical Banking Corporation, a bank holding company. In 1996, it acquired Chase Bank, adopted the Chase name, and became the largest bank in the United States. Prior to the 1996 merger, Chemical was the third-largest bank in the U.S., with $182.9 billion in assets and more than 39,000 employees. In addition to operations in the U.S., it had a major presence in Japan, Germany, and the United Kingdom. It was active in corporate banking as well as retail banking and investment banking and underwriting corporate bonds and equity.
The bank was founded in 1824 as a subsidiary of the New York Chemical Manufacturing Company by Balthazar P. Melick and others; the manufacturing operations were sold by 1851. Major acquisitions by the bank included Corn Exchange Bank in 1954, Texas Commerce Bank in 1987, and Manufacturers Hanover in 1991. The bank converted to the holding company format in 1968.

Operations

Before its 1996 merger with Chase, Chemical had two operating segments: the Global Bank and Consumer & Relationship Banking.
  • Global Bank The Global Bank served the bank's large corporate clients and was made up of a traditional investment banking division, known as Global Banking & Investment Banking, as well as a market maker division, known as Global Markets. Global Banking & Investment Banking performed advisory services such as mergers and acquisitions and corporate restructurings as well as capital raising functions, such as leveraged loan syndication, high yield debt, and other debt and equity underwriting. The bank's private equity and venture capital functions were also housed in this division. Global Markets was primarily focused on sales and trading activities, foreign exchange market dealing, financial derivatives trading and structuring, risk management, and other market-related functions. Chemicals Global Bank roughly balanced its revenue in 1995 between investment banking and markets activities.
  • Consumer & Relationship Banking. The Consumer and Relationship Banking division offered consumer banking, commercial banking, credit cards, mortgage loans, home equity loans, and student loans. It was a major lender to middle-market companies nationally and to small businesses in the New York metropolitan area. This division also included a small private banking business, although Chemical was not a leading player in this market.

    History

Founding and early history

In 1823, the New York Chemical Manufacturing Company was founded by Balthazar P. Melick and directors John C. Morrison, Mark Spenser, Gerardus Post, James Jenkins, William A. Seely, and William Stebbins. Additionally, Joseph Sampson, although not a director, was among the largest of the original shareholders of the later bank. During the 1820s, prospective bankers found that they were more likely to be able to successfully secure a state bank charter if the bank was part of a larger business. Accordingly, the founders used the manufacturing company as a means of securing a charter from the New York State legislature. In April 1824, the company amended its charter to allow Chemical to enter into banking, creating a separate division for the new activity. Melick was named the first president of the bank, which catered to merchants in New York City. Early investments by the bank were the Erie Canal and new roads.
In 1826, John Mason, one of the richest merchants in New York, became a shareholder of the bank. Mason succeeded Baltus Melick in 1831 as president. Mason was responsible for leading Chemical through the Panic of 1837. When a speculative bubble collapsed on May 10, 1837, banks suspended payment of gold and silver specie. Although Chemical followed other banks in suspending payments during the 1837 crisis, it was one of the earliest to resume payments in specie. Mason served as president until his death in 1839.
Isaac Jones, Mason's son-in-law, then took over. In 1844, when New York Chemical Manufacturing Company's original charter expired, the chemical company was liquidated and was reincorporated as a bank only, taking advantage of the Free Banking Act of 1838 and becoming the Chemical Bank of New York in 1844.
By 1851, the company had sold all remaining inventories from the chemical division as well as the corresponding real estate holdings.
During the Panic of 1857, Chemical continued to make payments in specie even as 18 New York banks closed in a single day. For a few days, it was the only bank to redeem notes in gold instead of in loan certificates; the bank got a nickname, "Old Bullion." The panic, which had hit banks and caused a number of failures, led banks across the country to suspend specie payments and turn to issuing paper promissory notes. Chemical's decision was highly unpopular among its fellow banks and led to the bank's temporary suspension from the New York Clearing House, of which Chemical was a charter member since 1853. Chemical developed a reputation for stability. This reputation was extremely important for Chemical's growth during the recessions of the 1860s.
In 1865, after the passage of the National Bank Act, Chemical received its national charter as the Chemical National Bank of New York, at the urging of the secretary of the treasury. This allowed Chemical to issue government-backed national bank notes, the forerunner to paper money. In 1857, the bank had deposits of $1.6 million, which grew to $3.5 million in 1861 and to $5.1 million by 1871. Among the bank's first directors under its new charter were Cornelius Roosevelt, John D. Wolfe, Isaac Platt, and Bradish Johnson, as well as bank president John Q. Jones.
By December 1873, the bank had 35 employees, including eleven tellers, eight clerks, and four bookkeepers.
Isaac Jones's cousin, John Quentin Jones, led Chemical through 1878. The Mason and Jones families maintained effective control of Chemical for much of its first 50 years.
John Q. Jones was succeeded in 1878 by George G. Williams, who had joined the bank in 1842 and served as cashier of the bank from 1855 onward. In that position, Williams was also inculcated in Chemical's conservative style of banking. Williams served as president from 1878 through 1903.

1900–1946

By the 1900s, Chemical had one of the strongest reputations in banking, but as a business, it was in decline, losing accounts each year. Unlike many of its peers, Chemical had been reluctant to expand into securities and other businesses and had not paid interest on bank accounts. Both practices, considered to be highly conservative, had allowed Chemical to develop a large capital reserve but were not attracting customers. William H. Porter, a prominent banker of the era, was named president of the bank in 1903 after the death of the previous president, George G. Williams. Porter left Chemical seven years later to become a partner at J.P. Morgan & Co. in 1910 and was succeeded by Joseph B. Martindale, who was named president in 1911.
In 1917, Chemical named a new president of the bank, Herbert Twitchell, after the death of Joseph B. Martindale. Months after Martindale's death, it was discovered that he had stolen as much as $300,000 from the account of Ellen D. Hunt, a niece of Wilson G. Hunt.
Twitchell initiated a major turnaround of Chemical, setting up a trust business and reversing Chemical's policy of not paying interest on cash accounts. These steps, along with other initiatives, resulted in an increase in deposits from $35 million in September 1917 to $63 million in December 1917 to $81 million by 1920. In 1920, Twitchell was succeeded by Percy H. Johnston, then aged 39, and remained with the bank as chairman of the board. Johnston served as the bank's president until 1946, during which the bank expanded to rank seventh in the U.S.
In 1920, Chemical completed its first major acquisition, merging with Citizens National Bank. The acquisition of Citizens National, a small New York commercial bank, increased Chemical's assets to more than $200 million with more than $140 million of deposits. In 1923, Chemical established its first branch and by the end of the 1920s had opened a dozen branches in Manhattan and Brooklyn as well as a branch in London, its first international presence.
In 1929, Chemical reincorporated as a state bank in New York as Chemical Bank & Trust Company and merged with the United States Mortgage & Trust Company, headquartered on Madison Avenue and 74th Street. During the Great Depression, Chemical's deposits grew by more than 40%, and in 1941, the bank reached $1 billion of assets. During this period, Chemical also established Chemical National Company, a securities underwriting business.

1947–1979

In 1947, after the retirement of Percy Johnston, Harold Holmes Helm was named the president of Chemical and served first as president and later as chairman of the bank for the next 18 years until his retirement in 1965. In 1947, Chemical merged with Continental Bank and Trust Company.
In 1954, Chemical merged with the Corn Exchange Bank in its largest acquisition to date, becoming the Chemical Corn Exchange Bank. Founded in 1853, the Corn Exchange Bank, based in New York City, had built a network of 98 branches in several states and $774 million in deposits through the acquisition of community banks.
In 1959, the bank merged with New York Trust Company, effectively doubling the size of the company. New York Trust Company, which had a large trust and wholesale-banking business, specialized in servicing large industrial accounts. At the time of the merger, Chemical Corn was the fourth largest bank in New York, and New York Trust was the ninth largest bank, and the merger created the third largest bank in New York and the fourth largest in the U.S. with $3.8 billion of assets. Following the merger, the bank dropped the usage of the "corn exchange" from the corporate name to become the Chemical Bank New York Trust Company.
Throughout the early 1960s, Chemical had begun to expand into New York's suburbs, opening branches on Long Island and in Westchester County.
In early 1968, the bank acquired L. F. Dommerich, a factoring company.
In November 1968, Chemical reorganized itself as a bank holding company, Chemical New York Corporation, which allowed for more rapid expansion.
In the late 1960s and early 1970s, Chemical opened new offices in Frankfurt, Germany ; Zurich, Switzerland ; Brussels, Belgium ; Paris, France ; and Tokyo, Japan. In 1970, it formed a venture in London focused on Eurocurrency financing.
In 1975, Chemical acquired Security National Bank, which had a 96-branch network on Long Island, for $40 million in cash.