In spite of expectations that rival US banks would record big losses on risky loans originated last year, JP Morgan Chief Financial Officer Jeremy Barnum told investors that the bank is definitely open for business in leveraged lending.
The Federal Reserve hiked interest rates to contain inflation, which caused Wall Street’s demand for leveraged loans to collapse. As a result, several US banks reduced their lending to lower-quality corporate borrowers last year.
JP Morgan $700 Million Loss
After experiencing significant losses on debt issues in 2013, including a $700 million loss on an $8.5 billion loan package supporting the buyout of software giant Citrix Systems Inc., the majority of major banks have decided to absorb debt they had underwritten earlier in the year.
Previously, bankers estimated that between $35 billion and $50 billion of these loans are lying on bank balance sheets awaiting a more favorable market scenario.
Elon Musk received $13 billion in loans and bonds last summer from a consortium of banks under the joint leadership of Bank of America for his purchase of Twitter, the largest social media platform.
And since, banks have had trouble selling the debt at a reasonable price and have elected to hold it on their balance sheets.
When questioned if these delayed deals will affect the lending activity of large banks like JPMorgan, which has been less active than its competitors, Barnum stated that the overhang is already reflected in prices and banks are able to absorb losses on current agreements.
The Twitter debt and other transactions must continue to be valued at market value in the bank’s records, with funds set aside for losses and quarterly results revealed. The exact amount is now unknown because banks base their decisions on market evaluations and their own capabilities.
Alastair Borthwick, the chief financial officer of Bank of America Corp., said that leveraged loans were taken into account in the company’s results. Still, he didn’t say more about any big deals.
Morgan Expects Chinese Stocks To Continue Rising
Private Bank predicts that Chinese equities will keep rising as recent market tailwinds drive a revaluation. It stated that although the yuan’s outlook was less optimistic, the credit market was likely to blow up following the reopening.
Analysts including Alex Wolf stated in a letter to clients that recent events, including the end of the zero-Covid policy, supporting property measures, and lowering geopolitical concerns, have created potential upsides for stocks even after strong advances over the last two months.
The MSCI China Index, which keeps track of more than 700 Chinese businesses listed both domestically and internationally, had increased by about 16% since December 7, when China significantly relaxed its Covid-19 controls to support the economy.
As a result of the reopening, capitalization in Hong Kong and mainland bourses has increased by more than US$1 trillion, with foreign funds investing at the quickest rate in at least four years.