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Monday, 25 February, 2002, 18:09 GMT
JP Morgan tops corporate debt lenders
JP Morgan logo
Traders have sold-off JP Morgan's shares
Investment bank JP Morgan Chase organised and ultimately guaranteed almost half of all commercial paper - or corporate short-term loans - issued by US companies last year, adding to fears about the bank's financial exposure.

Shares in the second largest US bank have fallen more than 25% this year, as investors fret about the bank's loans to companies like Enron, to which it was a major lender, and bankrupt telecom group Global Crossing.

Commercial paper
A short term debt facility, of usually 30 to 50 day, that corporations can use to fund day-to-day operations when denied other forms of credit. While rarely called upon, Tyco and Enron both used this facility.
JP Morgan Chase "underwrote" the commercial paper, raising the money on behalf of companies and promising to provide the loan itself should the bank fail to find investors prepared to give the loan.

The Loan Pricing Corporation, a subsidiary of Reuters, carried out the study into debts covered by America's banks and found JP Morgan was the clear leader with a 46% share of the $1,400bn plus market.

"What is important to be aware of is that while JP Morgan is exposed, as are other banks, a lot of these loans have been syndicated to other institutions," the Loan Pricing Corporation's director of analytics, Meredith Coffey told the BBC's World Business Report.

"The markets are worried, but I don't think they need to be. It is a very large, a very strong and very well capitalised bank," she said.

'Not worried'

Loan losses related to Enron contributed to the bank's fourth-quarter loss of $332m, and JP Morgan was forced to put aside another $510m in the quarter in case of future loan defaults.

"I'm not worried about the overall safety and soundness of the bank but there is a possibility that earnings in the next couple of quarters could fluctuate," Independent bank analyst Ray Soifer told the BBC.

JP Morgan is involved in a legal wrangle with insurance companies over their refusal to pay $1bn relating to its Enron dealings.

Several insurance companies are expected to formally accuse JP Morgan Chase of engineering loans to Enron disguised as trades to allow the troubled energy company to disguise losses, the New York Times reports.

JP Morgan has itself sued 11 insurers for refusing to honour its $1bn in claims relating to its dealings with Enron.

The court hearings are scheduled for Wednesday.

Federal Reserve Bank of New York is also reportedly examining JP Morgan's accounting in commodity-related trades.

Ray Soifer, Independent bank analyst
"There is a possibility that earnings in the next couple of quarters could fluctuate."
Meredith Coffey, Loan Pricing Corporation
"While JP Morgan is exposed a lot of these loans have been syndicated to other institutions."
The New York Times' Riva Atlas
"They suspect that there may have been fraud involved"
See also:

22 Feb 02 | Business
JP Morgan faces Enron deal inquiry
17 Jan 02 | Business
Enron and Argentina hit JP Morgan
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