Magazine article American Banker

JPMorgan Chasei?1/2s Rivals Stick to Vanilla Bonds

Magazine article American Banker

JPMorgan Chasei?1/2s Rivals Stick to Vanilla Bonds

Article excerpt

Byline: Harry Terris

If JPMorgan Chaseas (JPM)A trading blowup raised worries about booby traps at other financial giants, it might be comforting to know that its securities portfolio is more complex a and perhaps trickier to hedge a than those of rival megabanks.

When theyare not lending, banks typically subsist on a diet heavy in government-backed mortgage bonds: debt issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae accounted for more than half of bank securities portfolios at yearend, according to data from the Federal Deposit Insurance Corp.

Most of the biggest banks fit the profile. Such instruments increased 20 percentage points from the end of 2007 to 82% of U.S. Bancorpas (USB) $74 billion securities book as of the first quarter, for instance. Meanwhile, U.S. Bancorp reduced its holdings of mortgage bonds without federal guarantees by 8 percentage points, to 2% of the portfolio.

Similarly, Bank of America (BAC) has maneuvered away from the private-label mortgage bonds that built up on its balance sheet during the housing bubble. Agency debt now makes up about 76% of its holdings. Treasuries make up another 11%.

(The data here does not include trading books, where banks take positions to try to profit from short-term price movements. Such assets totaled $716 billion across the industry at yearend, compared with $2.9 trillion of securities in different buckets.)

JPMorgan Chase, however, has moved in the opposite direction, piling into private-label mortgage bonds and foreign securities as agency debt fell by 49 percentage points from the end of 2007 to 29% of its $379 billion securities portfolio as of the first quarter. …

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