J.P. Morgan to Charge Institutional Customers for Some Deposits -- Update

By Emily Glazer 

J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, the bank's chief financial officer said at an investor event Tuesday.

The largest U.S. bank by assets is aiming to reduce the affected deposits by up to $100 billion by the end of 2015, according to a bank presentation.

The newest fees will vary by client, depending on a variety of factors, including their overall relationship with the bank and the size of the account. J.P. Morgan tiered clients based on a certain score range that will impact what surcharge they will pay, ranging from 3.5% to 5.5%, according to the presentation.

The move is the latest in a series of steps large global banks have been discussing in recent months to discourage certain deposits due to new regulations and low interest rates.

J.P. Morgan's steps are among the most detailed and widespread. Among other points, Chief Financial Officer Marianne Lake stressed alternatives customers affected by the deposit moves can use for their excess cash.

"We'll reshape the business over time by shrinking certain exposures," Ms. Lake said, adding that these balance sheet "accommodations" for clients in the past now impact some regulatory scores.

The plan won't affect the bank's retail customers, but some corporate clients and especially an array of financial firms, including hedge funds, private-equity firms and foreign banks, will feel the impact, according to an internal bank memo reviewed by The Wall Street Journal. The bank is focusing on around $200 billion of certain "excess" deposits from financial institutions out of a total $390 billion of financial institutions deposits, according to the presentation.

The bank is making the moves because certain deposits are less profitable to handle than they used to be. New federal rules essentially penalize banks for holding deposits viewed as prone to fleeing during a crisis or a stressed environment.

"We are adapting to a changing regulatory environment across our company, " according to the J.P. Morgan memo sent Monday and signed by the bank's asset-management, commercial-bank and corporate and investment-bank heads.

J.P. Morgan is one of the most affected by new capital and liquidity rules, in part because it is one of the largest banks and has a variety of complex businesses, including trading and serving hedge funds. The presentation details that the changes are necessary to deal with clients deemed more interconnected and risky by regulators. In addition to J.P. Morgan's relationships with hedge funds, foreign banks and private-equity firms, its dealings with central-bank clients could be also affected, according to the memo.

Under the bank's new push, those clients will be asked to adjust certain deposits viewed as more temporary by either paying a new fee or moving the proceeds to a similar J.P. Morgan product such as a money-fund sweep account. In some cases, the bank will likely ask clients to hold their deposits at a different firm.

The Wall Street Journal reported in early December that J.P. Morgan and several other banks, including Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp., had spoken privately with clients in recent months that new regulations are making some deposits less profitable, in some cases telling clients they would charge fees or work to find alternatives for some of the deposits. The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry's most attractive forms of funding.

Since the financial crisis, new rules have been put into place that require banks to maintain enough high-quality assets that could be converted into cash during a crisis to cover a projected flight of deposits over 30 days. Because large, uninsured deposits would be expected to leave most quickly, the rules will now require that banks maintain reserves for those deposits that they cannot use for profitable activities like making loans. That makes it much less efficient or profitable for banks to hold these deposits.

Certain proposals put the largest banks in an even tougher spot. Proposed global guidelines on systemically important banks include multiple categories requiring tougher capital rules as a bank gets larger, more connected and more reliant on short-term wholesale funding.

Some customers have already had to deal with new fees. J.P. Morgan's commercial bank in the fall told some clients that it would begin charging monthly fees on deposit accounts, beginning Jan. 1 for U.S. accounts and later for international accounts, according to a memo viewed by The Wall Street Journal and people familiar with the matter.

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