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By Matt Tracy
(Reuters) – JPMorgan Chief Monetary Officer Jeremy Barnum informed traders the financial institution is “completely open for enterprise” in leveraged lending at the same time as different U.S. banks are anticipated to guide vital losses on dangerous loans underwritten final 12 months.
“Phrases are higher, pricing is best, we now have the sources wanted,” Barnum mentioned on a convention name with analysts. “We’re absolutely there. No overhang and no subject.”
Barnum’s feedback come after many U.S. banks reduce on lending to lower-quality company debtors final 12 months, as Wall Avenue’s demand for leveraged loans plunged because the Federal Reserve raised rates of interest to tame inflation.
After vital losses on debt gross sales final 12 months, together with a $700 million loss on an $8.5 billion debt package deal funding the buyout of software program maker Citrix Techniques Inc, main banks have largely chosen since then to soak up debt they’d underwritten earlier within the 12 months.
Some $35 billion to $50 billion of such loans are caught on banks’ books as they await a greater market atmosphere, bankers informed Reuters beforehand.
Final summer time, Financial institution of America collectively led a bunch of banks to offer $13 billion in loans and bonds to Elon Musk for his acquisition of social media large Twitter. The banks have since struggled to get the debt off their books at an affordable worth, as a substitute selecting to carry the debt.
When requested whether or not these caught offers would constrain lending exercise by giant banks like JPMorgan, which has been much less energetic than its friends, Barnum mentioned the overhang is already mirrored in costs and banks are in a position to take in losses on current offers.
“There’s a little bit of a story that exercise available in the market wants to beat an overhang,” Barnum mentioned. “We’re not satisfied that that’s true.”
Banks should nonetheless mark to market the Twitter debt and different offers to their market worth on their books, setting apart funds for losses which can be reported in quarterly outcomes. The precise quantity stays to be seen, because the banks determine how a lot to put in writing it down primarily based on market checks and judgment.
Financial institution of America Corp’s Chief Monetary Officer Alastair Borthwick mentioned firm accounts for leveraged loans in its outcomes, with out giving particulars on any giant offers.
“We mark our positions each week,” and books income or losses by way of its funding banking and buying and selling arms, Borthwick mentioned. “It’s all in there, our outcomes mirror any marks in any given quarter and we observe the method as we do each time.”
(Reporting by Matt Tracy; enhancing by Lananh Nguyen)
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