[DEBATE] : Morgan Chase Banker Warns of Risk of Political Interference
Riaz K Tayob
riaz.tayob at gmail.com
Sat Jan 31 10:33:40 GMT 2009
[those masters of allocative efficiency - efficiency?]
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Banker Warns of Risk of Political Interference
By Peter Thal Larsen, Gillian Tett, and Francesco Guerrera
Financial Times, London
Friday, January 30, 2009
The bailouts of Citigroup and Bank of America could distort the market
if the US lenders succumb to political pressure when making lending
decisions, a senior executive at JPMorgan Chase has warned.
Jes Staley, head of JPMorgan's asset management and private banking
operations, said political interference in the management of those
lenders that have turned to the US government for large-scale support
was the "biggest risk" facing his bank.
His comments, made at a seminar on the fringes of the World Economic
Forum in Davos, highlight the growing concern among financiers and
policymakers that recent government banking bailouts on both sides of
the Atlantic could distort the market while undermining global capital
The US authorities have in recent months taken on much of the risk on
hundreds of billions of dollars of loans held by Citigroup and BofA.
The incoming administration of Barack Obama, the president, is exploring
the possibility of expanding this insurance scheme to other lenders as
part of a comprehensive rescue package.
"If the big banks start to be geared for public policy as opposed to
economics we may end up competing against institutions that are being
run for non-economic purposes," Mr Staley said. "That is the biggest
risk we see out there."
US banks have been sharply criticised by politicians for their
reluctance to lend out to companies and consumers the $350 billion (E273
billion, L242 billion) in government aid they have received.
However, Citi and other banks have argued that in the economic
conditions it is difficult to make loans to companies and individuals as
most new lending would be loss-making and end up burdening their balance
sheets with further writedowns. "Today it is cheaper to buy a loan in
the secondary market than to make one," Vikram Pandit, Citi's chief
executive, told Wall Street analysts this week.
The warning was made as one of the leading private equity players said
on Friday that private equity groups were looking for ways to bypass
banks when raising capital. Henry Kravis, founder of Kohlberg Kravis
Roberts, said those moves could accelerate in the coming year, given the
scale of capital that needs to be raised and the difficulties that banks
face in using their own balance sheets.
"We have set up a broker-dealer so we can go directly to people who
provide capital, people like Fidelity, Templeton, insurance companies,
pension funds and sovereign wealth funds," he told a meeting in Davos.
"We can get long-term debt. It will be smaller but the difference now is
that we were relying on the banks as conduitsâ€‰. .â€‰.â€‰.â€‰ Now we go
Mr Kravis said about $3,000 billion of corporate debt would come due in
the next five years, most of which was investment-grade debt. This would
need to be replaced in some form, he suggested -- creating a need for
private equity groups to provide funds.
The private equity sector as a whole already had some $400 billion worth
of equity raised, Mr Kravis suggested.
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