By Emily Glazer
J.P. Morgan Chase & Co. is preparing to charge large
institutional customers for some deposits, citing new rules that
make holding money for the clients too costly, the bank's chief
financial officer said at an investor event Tuesday.
The largest U.S. bank by assets is aiming to reduce the affected
deposits by up to $100 billion by the end of 2015, according to a
bank presentation.
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. J.P. Morgan tiered clients based on a certain
score range that will impact 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 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.
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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