Although JP Morgan won’t say what interest rate it is charging California for its $1.5 billion loan it made to buy back California’s IOUs, it seems likely that the rate is very low.
The IOUs had an interest rate of 3.75%, so the JP Morgan loan has to be lower than that.
More importantly, however, JP Morgan’s head of municipal finance says that yield is irrelevant to the bank. It sees the loan as part of the bank’s “social responsibility.” What’s more, JP Morgan plans to use the loan as a kind of loss leader to gain more municipal business.
In an interview with Deal Journal’s Michael Corkery, Jeff Bosland, the head of tax exempt capital markets and public finance at J.P. Morgan, explained the thinking behind the loan. Here’s a the relevant excerpt:
DJ: What does J.P. Morgan hope to gain by lending to California?
Bosland: We have done a good job protecting our balance sheet and with that comes a responsibility. That’s a message that comes from top of the firm, from (chief executive) Jamie Dimon and Steve Black (co-CEO of the investment bank). We have a social responsibility to deploy that strength.
DJ: But what’s in it for J.P. Morgan financially? Are the yields very high?
Bosland: Yield doesn’t have anything to do with it. We are trying to build up our municipal franchise. With a state the size of California, we have the capability to help on a big scale. People tend to remember you when you were there for them in tough times.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.