We’re not suggesting JPMorgan did anything illegal or immoral, but what’s up with the hush-hush capital raise?
Early on Wednesday, the third-largest U.S. commercial bank, and resident Wall Street savior announced a 50 percent drop in first- quarter earnings, dragged down by $4.4 billion of write-downs and loan losses. Chief Executive James Dimon spoke with reporters for a half hour, spent about an hour with analysts and even attended a Korea Investment Forum luncheon, as pictured above.
At no time did the putative Prince of Wall Street mention a little thing like selling $6 BILLION of new hybrid debt to further bolster its so-called “fortress balance sheet.” The sale was quietly completed later on Wednesday.
Portfolio thought the timing was “very, very weird” while Housing Wire did a double take.
The bank declined to comment on the transaction, but our sources at JPMorgan said the bond sale was routine, one of more than a hundred such deals over the past decade. Moreover SEC rules prevent banks from disclosing material information in the days ahead of an earnings announcement.
Besides, the source said, bond buyers all over the market knew a deal was in the works and proved to be very hungry for the paper, which was structured so that common shareholders will not see their share of profits diluted. In that case, it’s unlike the costly sales of stock and convertible shares by foundering banks like WaMu or Wachovia.
These days, as the New York Post chuckles, Dimon & Co really can do no wrong…
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In an effort to shore up its balance sheets after billions were siphoned off from bad mortgages, JPMorgan Chase & Co will raise “$6 billion in its biggest offering of perpetual preferred stock”, according to a report by Bloomberg News. “New York-based JPMorgan, the third-biggest bank in the U.S., has posted about $10 billion of asset writedowns and credit losses since the start of the subprime-mortgage turmoil early last year,” the Bloomberg article reported. Regulatory law requires all banks to maintain capital reserves at a certain level in order to remain solvent if borrowers default on their loans. The JPMorgan Board of Directors could have decided that by raising the $6 billion in preferred stock and recapitalizing the banks now that it would help to keep the financial markets from becoming too panicky over recent losses. The markets are likely to greet the Directors’ decision as a responsible and positive one.
- Posted by NewsVisual