JPMorgan Risk Swap Ends Up at a Familiar Place: Rival Banks
(In banking this isn’t a lot-amount-but it isn’t insignificant either-so who do you think is/will be the winner here?…kek…and yet another example why these shitbags in Finance need to go as just because it’s approved by the non-existing “regulators” doesn’t mean you should do it and/or lend against it as the ‘Morgue needed somewhere to park some crap and found it-see comments below in ( ) )
When JPMorgan Chase & Co. arranged a series of trades to shift the risk of losses from $20 billion of its loans, some of those dangers wound up at a familiar place: rival banks.
The deal, struck late last year, was one of the biggest ever Synthetic Risk Transfer trades, or SRTs, opaque transactions heralded by Wall Street and approved by regulators that are supposed to hand possible loan losses to hedge funds and other nonbank investors. Yet some buyers in the JPMorgan deal — and in multiple other SRT trades — borrowed money from other banks to help finance their stakes and inflate returns, people familiar with the matter say.
Nomura Holdings Inc., Morgan Stanley and NatWest Group Plc, have emerged as some of the most active lenders to investors in SRTs, along with rivals including Banco Santander SA and Standard Chartered Plc. That leaves them well-placed to profit from an expected surge in the deals — but exposed to potential losses if debts end up going bad and the SRT investor hits trouble. The lurking presence of Wall Street loans behind some of these complex trades suggests exposures that were meant to be shifted elsewhere remain tied to the banking system, an outcome that’s starting to spook regulators. “If a bank’s lending against the SRT instrument as collateral, you’re clearly not transferring the risk outside the banking system,” says Sheila Bair, who led the Federal Deposit Insurance Corp. during the financial crisis(would hardly call what ‘hair’ Bair did at the FDIC as “leadership” as she was chief instruction taker for the many shotgun weddings they arranged instead of actually doing the right way thing and failing those insolvent banks-as this is not a new strategy as they didn’t have the money back then either)“Any counterparty investing in SRT using bank-provided leverage should be prohibited, full stop.” Spokespeople for the banks declined to comment.
On the JPMorgan deal, DE Shaw & Co. and LuminArx Capital Management were among investors that used leverage, according to people with knowledge of the transactions. Both firms declined to comment.
Banks issued about $25 billion of SRTs in 2023, partially offloading the risk of $300 billion of loans, according to an estimate from Pemberton Asset Management. Market participants surmise that anywhere between 10% and 50% of the money for these deals could be borrowed, although it’s impossible to be certain given the private bilateral nature of such loans. Although common in Europe for years, the craze for this generation of synthetic bonds only really took off in the US in 2023, when Wall Street was figuring out ways to get ahead of tighter Basel III capital rules.(that Europe just put off adopting again yesterday and NOT the reason rates were lowered last week-hemorrhaging bank balance sheets that include the need to re-finance a shit-ton of devalued CRE loans as that reason)Once the Fed provided some guidance and approved several SRT trades, banks such as Wells Fargo & Co. started reaching out to investors to put together their own deals.(can’t fault them for doing it as it has a buyer so someone really needs head examined it Risk Mgmt of the buyers-the need to book revs drives this for them and they could care less about 6 months to a year from nao)
JPMorgan’s sale late last year, which transferred the loan risk in the form of $2.5 billion of synthetic bonds, took things up a notch. Douglas Charleston at TwentyFour Asset Management describes it as a “landmark” given its scale. Other buyers included Blackstone Inc. and Dutch pension fund PGGM NV, people familiar say. JPMorgan and the investors declined to comment.
https://www.bnnbloomberg.ca/jpmorgan-risk-swap-ends-up-at-a-familiar-place-rival-banks-1.2083914