JP Morgan Backs Government Development Efforts

JPMorgan Chase & Company (JPM) said on Tuesday that it has raised approximately $90 billion in financing for local governments and nonprofit organizations throughout the country over the past nine months through traditional loans, credit facilities and bond and capital market underwritings.

Approximately 69% of the total financing was loaned to support state and local governments, approximately 17% was loaned to education organizations and the rest was given to healthcare organizations and other non-profits groups. Out of $90 billion, the company provided approximately $8 billion worth of financing for local governments and nonprofit organizations in Texas during that period. The financing was intended to help build bridges and parks, improve social services, train young people for jobs, expand hospitals and fund medical research.

JPMorgan’s funding came at a critical time when auction-rate securities and the fixed-rate loan markets had collapsed. This financing helped address the severe challenges to nonprofit organizations and local governments.

JPMorgan is in a relatively good shape from a capital perspective. We expect its capital position to be a major differentiator going forward vis-à-vis its peers as it implies lower risk of additional capital raises and more opportunity for market share gains.

Also, in the second quarter of 2009, the company repaid the full $25 billion in preferred capital received as part of the Troubled Asset Relief Program (TARP). Though results for the last few quarters benefited from a strong performance by the investment bank and other segments, Consumer Lending and Card Services deteriorated due to continued high levels of credit costs.

We anticipate continued synergies from the company’s diversification and strong capital position, but increasing provisions and worsening credit quality will be a drag on upcoming results. Therefore, we are recommending the shares as Neutral.

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