JPMorgan ‘open for business’ in leveraged loans as rivals get stuck with losses

By Matt Tracy

Jan 13th (Reuters) – JPMorgan Chief Financial Officer Jeremy Barnum said to investors that the bank was “absolutely open” for leveraged lending, even as other U.S. banking institutions are expected to report significant losses on risky loans written last year.

“Terms are better, pricing is better, we have the resources needed,” Barnum said on a conference call with analysts. “We’re fully there. No overhang and no issue.”

Barnum’s comments come after many U.S. banks cut back on lending to lower-quality corporate borrowers last year, as Wall Street’s demand for leveraged loans plunged as the Federal Reserve raised interest rates to tame inflation.

Major banks have chosen to absorb debt that they had previously underwritten, despite significant losses in debt sales last year.

Some $35 billion to $50 billion of such loans are stuck on banks’ books as they await a better market environment, bankers told Reuters previously.

Bank of America led a consortium of banks that provided $13 billion in bonds and loans to Elon Musk to finance his purchase of Twitter. Since then, the banks have struggled to remove the debt from their books at a fair price and instead chose to keep it.

Barnum answered a question about whether the bank’s inactivity on lending would be a constraint to JPMorgan’s activity. He said that the overhang was already evident in prices and that banks can absorb losses from existing deals.

“There’s a bit of a narrative that activity in the market needs to overcome an overhang,” Barnum said. “We’re not convinced that that’s true.”

Banks will still need to mark Twitter debt or other deals to market to their market values on their books. This includes putting aside funds for losses that are reported quarterly. It is still unknown how much the bank will write down, as they make their own decisions based on market assessments and their judgment.

Bank of America Corp’s Chief Financial Officer Alastair Borthwick said company accounts for leveraged loans in its results, without giving details on any large deals.

“We mark our positions every week,” and books profits or losses via its investment banking and trading arms, Borthwick said. “It’s all in there, our results reflect any marks in any given quarter and we follow the process as we do every time.” (Reporting by Matt Tracy; editing by Lananh Nguyen)