While other investment banks are looking to cut and run, American Banker reported this morning that JPMorgan Chase & Co. has created a subprime flow business in an attempt to use the market crash as an opportunity to strengthen its subprime position.
The New York banking company announced the plan to begin buying loans one at a time last week and said it had hired Rick Boyd to be its subprime flow manager. Mr. Boyd joined JPMorgan Chase from Citigroup Inc.'s CitiMortgage.
A "flow" program involves buying loans one-off, rather than buying mortgages in bulk at the pooled level. JPMorgan's CEO certainly had some interesting comments in an investor presentation last month, as cited in the American Banker story:
During an investor presentation last month, James Dimon, JPMorgan Chase's chief executive, said that its share of subprime originations had increased, since the decline in its production had not matched the precipitous industrywide drop. Though he said he expects the turmoil to continue, he declared that subprime "is a good business." The turmoil "will go on for a while," Mr. Dimon said. "You will read about lawsuits and regulations and appraisals and brokers going out of business," and the investors in collateralized debt obligations "are going to sue." "I think a lot of the owners don't even know they have losses yet in some of these things, and they're probably just being notified as we speak," he said. "You have the repricing that's still going to take place, so you have headline articles if you travel around the country, every market you go to — foreclosures, unfairness of repricing. But … it will be a good business; we will be a big winner in it."
What's really prescient here are his comments on the CDO market -- remember, Dimont made the above comments one month ago, well before the current bond market turmoil turned into its current soap opera. If you don't subscribe to American Banker, I'd highly recommend it, BTW. Well worth the money. (Also, for those readers that work at Chase, Dimont's comments should certainly be reassuring regarding the investment bank's long term outlook on the industry.)