By Troy Kuhn
The credit arm of Bain Capital, Sankatay, won the auction for JPMorgan Chase & Co.’s (NYSE:JPM) debt portfolio, which includes Mezzanine loans in North America and Europe, and special securities in Asia and Australia. This $1.3 billion sale reflects the extent to which shadow banks are taking over profitable segments of big commercial banks. However, the aggregate value of the portfolio, i.e., $1.3 billion might be a little inaccurate, as it includes some equities and local currency debt, along with debt that trades for less than 100 cents on a dollar.
Both the companies reported today that the transaction will close by the end of the year, and that it will not have any material impact on JPMorgan’s earnings. Sankatay, which has $24 billion under its management, said that it intends to hire many of JPMorgan’s employees who built the portfolio.
JPMorgan CEO Jamie Dimon says he is “trimming” businesses that the bank doesn’t need, and therefore complying with stricter regulations that require banks to increase capital while restricting them to use their own money for investment.
The unit, based in Hong Kong, has attracted interest of many investment firms that find Asia as an attractive investment forum, which includes investment funds like Blackstone’s (NYSE:BX) GSO arm, Carlyle, and KKR (NYSE:KKR). Sankatay is eyeing distressed corporate debt in Asia and Australia due to a build-up in leverage, apart from talking away portfolios from European institutions like Lloyds Banking Group of the UK and the Irish Bank Resolution Corp. Jonathan Lavine, a Managing Partner of Sankatay, stated: “Opportunity comes when debt levels increase more rapidly than the pace of economic growth.”
JPMorgan is in talks with Lexington Partners and Carlyle Group to sell half of about $4.5 billion in investments that One Equity manages for the bank. Furthermore, it announced in March to sell its physical commodities unit because of pressure from regulators regarding leaving the business of storing and owning raw materials.
Shares of JPMorgan closed 0.3% lower at $59.01 on July 25, and the stock has gained 1.83% year-to-date.