J.P. Morgan to Exit Part of Its Government Securities Business

By Katy Burne 

Thirty clients of J.P. Morgan Chase & Co. are losing access to the bank's government securities settlements business, the unit that ensures that the quantities agreed to in trades are physically exchanged, in the bank's latest re-evaluation of its most capital-intensive businesses.

The move means the bank will no longer settle Treasury and agency bonds through its U.S. broker-dealer arm for those 30 clients, which are banks and brokers that use J.P. Morgan as a third party to settle trades on their behalf. The firm said it hoped the majority of clients would have a smooth transition, and that it would complete its exit by the end of 2017.

J.P. Morgan's decision affects only few dozen clients, but is significant because there are only a handful of large providers in the business, meaning those clients jettisoned are now under pressure to find alternatives.

Shifts in the plumbing underlying Wall Street's trading in government securities are closely watched because they can help determine how freely financial institutions lend and borrow trillions of dollars from one another overnight.

"After careful review, we have determined that it [government securities settlement] is a non-core service, particularly as we simplify our business and continue to prioritize strategic growth opportunities," said a spokesman for J.P. Morgan in a statement.

One of the businesses most caught up in J.P. Morgan's exit is a type of bond-for-cash exchange called a repurchase agreement, or repo, between large banks. The bank is not exiting its tri-party repo service, however, in which a third party facilitates settlement of the trades.

Write to Katy Burne at [e-mail]

(END) Dow Jones Newswires

July 21, 2016 17:26 ET (21:26 GMT)

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