By Emily Glazer
J.P. Morgan Chase & Co. is aiming to reduce certain deposits
by up to $100 billion by the end of the year and is preparing to
charge large institutional customers for some deposits thanks to
new rules that make holding money for the clients too costly.
The newest fees will vary by client, depending on a variety of
factors, including their overall relationship with the bank and the
size of the account, the bank's chief financial officer said at an
investor event Tuesday.
J.P. Morgan tiered clients based on a certain score range that
will affect what surcharge they will pay, ranging from 3.5% to 5.5%
, according to the presentation.
The move is the latest in a series of steps large global banks
have been discussing in recent months to discourage certain
deposits due to new regulations and low interest rates.
J.P. Morgan's steps are among the most detailed and widespread.
Among other points, Chief Financial Officer Marianne Lake and
Corporate and Investment Bank Head Daniel Pinto stressed
alternatives customers affected by the deposit moves can use for
their excess cash.
"We'll reshape the business over time by shrinking certain
exposures," Ms. Lake said, adding that these balance sheet
"accommodations" for clients in the past now impact some regulatory
scores.
The plan won't affect the bank's retail customers, but some
corporate clients and especially an array of financial firms,
including hedge funds, private-equity firms and foreign banks, will
feel the impact, according to an internal bank memo reviewed by The
Wall Street Journal. The bank is focusing on around $200 billion of
certain "excess" deposits from financial institutions out of a
total $390 billion of financial institutions deposits, according to
the presentation.
The bank is making the moves because certain deposits are less
profitable to handle than they used to be. New federal rules
essentially penalize banks for holding deposits viewed as prone to
fleeing during a crisis or a stressed environment.
"We are adapting to a changing regulatory environment across our
company, " according to the J.P. Morgan memo sent Monday and signed
by the bank's asset-management, commercial-bank and corporate and
investment-bank heads.
J.P. Morgan is one of the most affected by new capital and
liquidity rules, in part because it is one of the largest banks and
has a variety of complex businesses, including trading and serving
hedge funds. The presentation details that the changes are
necessary to deal with clients deemed more interconnected and risky
by regulators. In addition to J.P. Morgan's relationships with
hedge funds, foreign banks and private-equity firms, its dealings
with central-bank clients could be also affected, according to the
memo.
Under the bank's new push, those clients will be asked to adjust
certain deposits viewed as more temporary by either paying a new
fee or moving the proceeds to a similar J.P. Morgan product such as
a money-fund sweep account. In some cases, the bank will likely ask
clients to hold their deposits at a different firm.
"We're not going to have one size fits all" for clients, Mr.
Pinto said at the event Tuesday. He added that some clients may use
the re-pricing option but other clients will have a limit for these
types of deposits they can keep with J.P. Morgan.
The Corporate and Investment Bank will take on a "significant"
amount of the expected $100 billion deposit reduction, Mr. Pinto
said. He said the bank has spoken with some clients but will
progress more in the next few months.
The Wall Street Journal reported in early December that J.P.
Morgan and several other banks, including Citigroup Inc., HSBC
Holdings PLC, Deutsche Bank AG and Bank of America Corp., had
spoken privately with clients in recent months that new regulations
are making some deposits less profitable, in some cases telling
clients they would charge fees or work to find alternatives for
some of the deposits. The moves have thrown into question a
cornerstone of banking, in which deposits have been seen as one of
the industry's most attractive forms of funding.
Since the financial crisis, new rules have been put into place
that require banks to maintain enough high-quality assets that
could be converted into cash during a crisis to cover a projected
flight of deposits over 30 days. Because large, uninsured deposits
would be expected to leave most quickly, the rules will now require
that banks maintain reserves for those deposits that they cannot
use for profitable activities like making loans. That makes it much
less efficient or profitable for banks to hold these deposits.
Certain proposals put the largest banks in an even tougher spot.
Proposed global guidelines on systemically important banks include
multiple categories requiring tougher capital rules as a bank gets
larger, more connected and more reliant on short-term wholesale
funding.
Some customers have already had to deal with new fees. J.P.
Morgan's commercial bank in the fall told some clients that it
would begin charging monthly fees on deposit accounts, beginning
Jan. 1 for U.S. accounts and later for international accounts,
according to a memo viewed by The Wall Street Journal and people
familiar with the matter.
Write to Emily Glazer at emily.glazer@wsj.com
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