By Steve Gelsi
JPMorgan Chase doesn’t have any ‘particularly large concerns’ about $120 billion in multi-family loans, exec says
The mightiest of U.S. banks, JPMorgan Chase & Co., checked itself after a couple of challenged commercial real-estate loans at New York Community Bancorp Inc. sparked jitters in the banking sector last month.
JPMorgan Chase (JPM) did “a little bit of a deep dive” on its $120 billion multi-family loan portfolio, and came away satisfied with its overall health, the bank’s Financial Chief Jeremy Barnum said on Tuesday.
The bank stress-tested various properties for payment shock “and generally they hold up quite well,” Barnum said at the UBS Financial Services Conference.
“We’re going to be watching it closely and we worry about everything,” Barnum said. “But right now, we actually don’t have any particularly large concerns about the multi-family portfolio.”
The move by JPMorgan came after New York Community Bancorp (NYCB) disclosed losses on an office loan and a multi-family loan on Jan. 31 and saw its stock fall to its lowest levels since the 1990s while rekindling jitters in regional-bank stocks.
While $120 billion of its $200 billion in commercial real estate is in multi-family housing including about $24 billion in New York City, Barnum said the bank’s underwriting process is based on current rental income, not potential rent increases.
This means that the loans don’t rely on regulated rent hikes or on converting rent-controlled apartments into higher-paying market-rate units to remain sound.
“We underwrite to current rents, not future rents,” Barnum said. “We don’t underwrite based on the hope or the expectation of market rate conversions on the rent-controlled space.”
While other banks have larger exposure of their total loan book to the ailing office business, JPMorgan Chase maintains a $16 billion office loan portfolio out of $200 billion of total commercial real-estate loans.
The $16 billion of office space “is quite small in the scheme of things, and particularly small for us as a company,” Barnum said.
Nevertheless, the office space market isn’t about to rebound as workers stay at home more than they did before the COVID-19 pandemic.
“I personally have not seen or heard anything to suggest that the office space is going to get better any time soon,” Barnum said.
While the bank considers its portfolio of office loans as high quality, it’s also set aside capital in case loans in the sector underperform.
“We think we’re appropriately reserved and we’ll see what happens,” Barnum said.
JPMorgan Chase ranks as the largest U.S. bank with a current market capitalization of $528 billion. Its stock is up by 7.8% in 2023, compared with a 6.4% gain for the S&P 500 SPX.
-Steve Gelsi
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02-27-24 1606ET
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Source: morningstar.com
