JPMorgan builds up apartment-loan leader from WaMu rubble

Wed Jul 1, 2015 3:51am EDT
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By David Henry

NEW YORK (Reuters) - In September 2008, JPMorgan Chase & Co executives sifted through the rubble of Washington Mutual, the failed home loan bank that they had just won in a U.S. government auction.

They found something unexpectedly good: about $30 billion of mortgages on apartment buildings, which earned strong returns whether the economy was performing well or not.

"It was an unexpected bonus," JPMorgan Chief Executive Jamie Dimon told Reuters in an interview, adding that the apartment lending business is the single most valuable asset that JPMorgan acquired in the auction.

Washington Mutual's apartment lending business was the biggest of its kind in the United States and Dimon has made it even bigger. JPMorgan now holds some 20 percent of the U.S. bank loans on apartment buildings.

Before the crisis, the bank ranked closer to 20th. JPMorgan now has $52 billion of these loans outstanding, giving it a stronghold in a market that is increasingly important in the United States after the housing crisis brought down the homeownership rate.

Within JPMorgan, apartment lending is a relatively small business, accounting for less than 2 percent of its $2.6 trillion of assets. But the unit is seen as a model for how JPMorgan wants to run its lending business overall: make smart lending decisions in good times, like now, so that it can be strong enough to buy distressed assets on the cheap during bad times.

That's how JPMorgan's apartment lending business grew so much during the crisis: the bank bought assets from Washington Mutual and Citigroup Inc at low prices, which are generating solid income now. The bank is plowing income from crisis assets back into its business, to make it more efficient and better prepare it for the next downturn.

For example, JPMorgan is building systems that will allow it to approve loans in 15 to 20 days, half its current time, which is already fast by industry standards. The bank believes that when it can make loans faster than rivals, it will win more business without having to lower its credit standards.   Continued...

A view of the exterior of the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015. REUTERS/Mike Segar