Magazine article American Banker

Morgan, with an Eye on New Powers, Creates Separate Securities Subsidiary

Magazine article American Banker

Morgan, with an Eye on New Powers, Creates Separate Securities Subsidiary

Article excerpt

Morgan, with an Eye on New Powers, Creates Separate Securities Subsidiary

NEW YORK -- J.P. Morgan & Co. is moving its government securities and money market trading operations into a new subsidiary whose ultimate purpose is to carry out securities activities that are still off-limits to commercial banks.

Until the federal authorities lengthen the list of securities that banks may underwrite and deal, the new subsidiary, J.P. Morgan Securities Inc., will house only the 400 bank employees currently involved in trading, dealing, and brokering U.S. government securities and other money market instruments. The unit is scheduled to open its doors next Monday.

David Fisher, a 43-year-old senior vice president in charge of Morgan's domestic fixed-income group, was named president of the new subsidiary. mr. Fisher could not be reached for comment.

Last summer, Morgan asked the Federal Reserve Board for permission to underwrite and deal in commercial paper, municipal revenue bonds, and private mortgage-backed securities through J.P. Morgan Securities.

While such underwriting functions have long been considered illegal for commercial banks, Morgan, Citicorp, and Bankers Trust New York Corp. argue in pending applications at the Fed that subsidiaries may engage in underwriting activities provided that the units are "engaged principally" in permissible banking activities. Under those conditions, the banks argue, they could theoretically underwrite any securities without violating the Depression-era Glass-Steagall Act, which separates commercial banking from investment banking. …

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