Sometimes in investment banks, it’s the deals you don’t make.
JPMorgan JPM 0.16%
Chase & Co avoided most of the so-called pending deals in 2022 that cost rivals billions of dollars in paper losses. By luck or design, the largest bank in the US has not made takeover loans to back companies such as Twitter Inc., Citrix Systems Inc. and Nielsen Holdings PLC, which declined in value as markets turned very weak.
JPMorgan’s record contrasts with that of Bank of America Corp., which has made big loans to buyers of Twitter, Citrix, Nielsen and others. Bank of America CEO Brian Moynihan has struck a consistently optimistic note about the US economy, countering JPMorgan chief Jamie Dimon’s more gloomy warnings.
There is one thing Mr. Dimon feels good about—his firm’s low exposure to bad-buying loans, which bankers call leveraged loans.
“There are no real reductions in leveraged loans this quarter and that market has not yet been cleared,” Mr. Dimon said on an October conference call with Wall Street analysts. “Our share is very small, so we are very comfortable.”
|Target||Amount (billion)||Major Lenders||Industry|
|Citrix Systems Inc.||$15.0||Bank of America, Credit Suisse, Goldman Sachs||Technology|
|Twitter Inc.||$12.5||Morgan Stanley, Bank of America, Barclays||Media|
|Nielsen Holdings Plc||$10.3||Bank of America, Barclays, Mizuho, Ares||Media|
|Tegna Inc.||$7.7||Royal Bank of Canada, Bank of America, Goldman Sachs||Media|
|Tenneco Inc.||$5.5||Citigroup, Bank of America, Barclays||Automotive|
|Lumen Technologies Inc.||$4.9||Barclays, Bank of America, Goldman Sachs||Telecommunications|
|William Hill||$2.1||Morgan Stanley, JPMorgan, Mediobanca||Gambling|
|BBB Industries LLC||$1.6||JPMorgan||Automotive|
Note: Amount includes loans and bonds.
Source: LevFin Insights
JPMorgan’s diminished relationships with private equity firms in recent years have put JPMorgan out of business as a major-markets lender in 2022, according to rivals. The bank was also an adviser to some of the mergers, like Nielsen, which prevented it from providing loans, they said.
JPMorgan ranks fourth among US bond and purchase loan originators this year and Bank of America ranks third, according to data from Dealogic. JPMorgan’s average rank over the past 10 years is seventh, compared to an average of third over the past decade.
JPMorgan is also grappling with the fallout from recent acquisition financing that went sour, such as loans it made to support the purchase of sports betting company William Hill International. However, it has far fewer deals hanging on its balance sheet than competitors, leaving it with more cash to win new business.
Private equity firms, corporations and individuals who acquire companies often pay in part for loans made by investment banks to the firms they buy. The aim of the banks is to offload the debt to fund managers for more money than they lent, making the difference very small.
Purchase loans make up only a small portion of total lending in the US, and financing them does not necessarily mean that a bank has unusual risk exposure.
Still, the strategy backfired this year for firms such as Bank of America, Barclays PLC, Goldman Sachs Group Inc. and Morgan Stanley, which pledged in the winter and early spring to make major takeovers of banks. Interest rates subsequently rose, turning debt investors cautious and the price of leveraged loans fell. Now the banks must choose between liquidating the loans at a loss or keeping them on their balance sheets at marked down prices.
JPMorgan’s global head of corporate debt, Kevin Foley, was a mid-level banker during the 2008 credit crisis, when the bank was saddled with deals gone wrong. JPMorgan was the lead lender on the $25 billion takeover of JC Flowers & Co. the student loan lender Sallie Mae, which was eventually canceled, and Cerberus Capital Management LP’s troubled purchase of car maker Chrysler.
Mr. Foley shifted from making loans to restructuring them, vying with other creditors – often hedge funds – to recover as much money as possible from companies in bankruptcy court. He worked on some of the most controversial exercises of the era, including car supplier Lear Corp. and newspaper publisher Tribune Media Co.
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This time around, JPMorgan has postponed its desire for buyout loans until the fall of 2021, people familiar with the matter said. Mr. Foley and his team thought that the price inflation that would then rise in the United States would last for years because of supply disruptions and wage inequality, the people said. They also thought risk was increasing in buyout markets as rising valuations forced buyers to borrow too much to make winning bids, the people said.
In January, Vista Equity Partners and the private equity arm of Elliott Management Corp. buyout of cloud computing company Citrix Systems with a $16.5 billion bid. Bank of America, Credit Suisse and Goldman Sachs pledged to finance the bulk of the purchase with $15 billion of debt. By September, they and other banks had taken paper losses of $500 million combined, The Wall Street Journal reported at the time.
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