JPMorgan Chase & Co. (NYSE: JPM) is reportedly accelerating the securitization of billions in its loan portfolio, a move attributed to the anticipation of new U.S. capital requirements for major banks.
This strategic shift is primarily focused on products within Chase, JPMorgan's retail sector, encompassing mortgages, auto lending, and credit card loans, according to a news report by the Financial Times.
JPMorgan had $1.3 trillion in loans at the end of June, the report added.
The banking giant is strategizing to securitize a more significant portion of its loans than usual, effectively removing these loans from its balance sheet.
This approach alleviates the necessity to hold regulatory capital against these loans while allowing JPMorgan to continue servicing them, thus preserving its valuable client relationships.
Anticipating Regulatory Changes
The Federal Reserve's proposal in July, aiming to augment the capital banks are mandated to hold in proportion to their risk-weighted assets, is a significant catalyst behind this development. The proposed regulation would compel lenders to maintain an additional $2 of capital for every $100 of risk-weighted assets. JPMorgan's CEO, Jamie Dimon, has been vocal in his criticism of these proposals, cautioning that they could potentially render bank stocks uninvestable.
The bank's intensified securitization efforts are part of a broader strategy to diminish its risk-weighted assets.
This comes at a time when the securitization market at large is witnessing subdued activity, with U.S. asset-backed and mortgage-backed securitization issuance hitting its lowest since 2016, amounting to $463 billion in 2023.
Despite the Federal Reserve's proposals not being finalized, JPMorgan is proactively preparing for their implementation. This proactive stance is indicative of the bank's commitment to adaptability and strategic foresight in navigating regulatory landscapes.
In a related development, the bank recently concluded a $75 million settlement in a case linked to its dealings with the late financier Jeffrey Epstein, marking an end to one of its longstanding legal issues.
Price Action: JPM shares are trading lower by 0.32% to $141.83 on the last check Thursday.