JP Morgan to reduce credit exposure to clients By Gary Silverman in New York and Stephen Fidler in London Published: March 10 2002 18:25 | Last Updated: March 11 2002 16:25
William Harrison, JP Morgan Chase's chairman and chief executive, says Enron's failure is prompting the bank to scale back some of its credit commitments to highly rated clients.
In an interview with the Financial Times, Mr Harrison said the second-biggest US bank remained comfortable with its risks in making such promises of credit to blue-chip borrowers. But he said JP Morgan was worried about the anxieties such big commitments have been creating among investors since Enron's fall from grace in the credit markets.
"It does create a perception problem in this environment - big time," Mr Harrison said. "One of the lessons from this is we will thoughtfully manage down some of these larger credit exposures on investment-grade companies."
Mr Harrison portrayed the change as an incremental response. He said the bank remained committed to maintaining its leadership position in arranging loans for big companies and using that franchise to win investment banking mandates.
"I am not going to make any major strategic changes, because we like our strategic platform," Mr Harrison said.
Mr Harrison said the bank was looking for ways to cap the credit lines extended to well regarded companies for use in the event that they are unable to sell commercial paper. He said only the biggest commitments would be scaled back.
"We will do it very thoughtfully," Mr Harrison said. "We will do it over a long period of time."
JP Morgan's new policy will add to the pressures on companies trying to raise money in the commercial paper market, which has been contracting for more than a year.
Banks such as JP Morgan already were reducing their commercial paper back-up lines. Although JP Morgan remains the leading arranger of such facilities, its unused commercial commitments have fallen by $20bn in the past two years.
Concerns about JP Morgan's central role in the lending business have helped push down its market value by billions of dollars in recent months. The market reversal dwarfs JP Morgan's actual credit losses on Enron, which were $451m last quarter.
JP Morgan's share price fell in late February to its lowest level since Chase Manhattan bought JP Morgan for $32bn in late 2000 to create the current company. In recent weeks, however, its shares have rallied almost 30 per cent as the overall market has steadied and the management team has made its case to investors.
Mr Harrison said his board of directors had been "very supportive" during the recent period of turbulence.