08.16.2011
By Terry Flanagan

JPMorgan B-D Unit Upgraded

Standard & Poor’s Ratings Services upgraded JPMorgan Chase’s broker-dealer clearing subsidiary, JPMorgan Clearing, up one notch, to AA-/A-1+, in a move that brings it in line with a closely related affiliate.

“(JPMorgan Clearing) is guaranteed by JPMorgan Securities, we were equating the rating of Clearing to JPMS,” said Stuart Plesser, a credit analyst and director of the financial institutions group at S&P. “Because of the guarantee from JPMS, Clearing will get the same rating as JPMS. It’s not event-driven, such as something improved; it literally was a tie-in as part of JPMS.”

“The outlook is stable, reflecting our outlook on JPMorgan Chase,” said the S&P in its upgrade report. “We expect earnings contribution from JPMorgan Chase’s Retail Financial Services Unit to improve over time as loan-loss provisions decline.” The rating agency also said that it could possibly lower the rating if credit trends deteriorate, or if upcoming Dodd-Frank legislation hurts profitability at the bank more than expected.

A call seeking comment from JPMorgan was not immediately returned.

The upgrade for Clearing comes about a month and a half after S&P upgraded JPMorgan Securities’ credit rating to the same AA-/A-1+ grade.The ratings agency said at the time that the uprating JPMS’ earnings, assets and capital, and the importance of the unit’s products and services to the parent company’s global operating strategy.

“The ratings on JPMS reflect its position as a core broker-dealer subsidiary of JPMorgan,” said Plesser. We rate this subsidiary at the notional group operating level, and JPMorgan one notch lower due to structural subordination.”

JPMorgan Securities is a broker dealer for U.S. government securities, and also provides underwriting and advisory services. JPMorgan Clearing provides securities and futures clearing, customer financing, securities lending and other related services. It carries and clears customer cash and margin accounts for correspondents and proprietary trading accounts of hedge funds and broker dealers.

The upgrade from the S&P came just days after it downgraded U.S. sovereign debt from triple-A to AA+, with a negative outlook for the next six to 24 months, citing the U.S.’ mounting debt issues. The ratings agency noted that the lowering of U.S. debt would not have any immediate impact on the ratings of any U.S. banks.

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