Thursday, August 20, 2009

J.P. Morgan and Its Social Mission

The absurdity of it all. I think I could title that for every post these days.

J.P. Morgan is playing in the unsecured bridge loan arena to fulfill its "social mission." If that doesn't sound absolutely ridiculous I don't know what does but that according to the WSJ.

This is a great start to the article:

J.P. Morgan Chase to the rescue.

Wait a minute. Weren't they bailed out through the Bear Stearns deal and greatly helped through Washington Mutual deal not to even mention the TARP money they recevied? Yep, yep, and yep.

The New York bank has agreed to loan the struggling state of California $1.5 billion to generate some badly needed operating cash. The loan agreement is meant to tide the state over until it can get a deal for a much larger $10.5 billion loan which should help the state’s cash needs through 2010.

This funding is supposed to be completed in September. So we have what is called a bridge loan, a loan that is supposed to be for a short term that will be taken out by new funding.

This is just a riot:

J.P. Morgan says it loaned the money to California as part of its “social mission” to help a struggling state

The article goes on to explain, though not explicitly, that basically they are doing this to buy more business.

Of course, the bank also has a keen interest in building its business with the nation’s largest state. Late Tuesday, California picked (Surprise. Surprise) J.P. Morgan as senior book runner to sell the $10.5 billion in “revenue anticipation notes,” known as a RAN.

But this is classic high risk transaction that probably ends up okay but may not. The type of deals that worked until they didn't that got us into this mess.

There are some interesting elements about the J.P. Morgan’s loan deal. The bank agreed to the loan without any collateral from California, which has seen its credit badly bruised by a months-long fiscal crisis.

No collateral???

And in an interview tih Jeff Bosland, the head of tax exempt capital markets for Jp Morgan, when he was asked about this he admitted they were just trying to buy business.

Bosland: There is no collateral. It’s unsecured….Any time you lend money it is risky, but we are not concerned about the state of California. We are here to show them and other states that our commitment is firm. We are confident they can achieve the RAN (the $10.5 billion loan) around the end of September, which will take out our $1.5 billion loan.

They are confident? No, they don't care because if it goes sour Bernanke and crowd will be there to bail out JP Morgan or California or both.

The absurdity of it all

1 comment:

Carol said...

Oops unsecured bridge loan to fulfill social mission now God has to save us!!
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