JPMorgan (JPM) Eyes Bid for $18B Mortgage Book of UKAR
JPMorgan Chase & Co. JPM is likely to strike yet another deal with the UK Asset Resolution Limited (UKAR), the UK government’s so called “bad bank”. According to a Bloomberg report, JPMorgan intends to bid for around £12 billion ($18 billion) of mortgages being sold by UKAR.
Notably, last October a consortium led by JPMorgan acquired a portfolio of performing residential mortgages for £2.7 billion from UKAR.
UKAR, which was set up in October 2010 with the task of winding down the assets of two failed legacy banks that were bailed out during the crisis – Bradford & Bingley plc (B&B) and Northern Rock Asset Management plc (NRAM) – is selling its ‘Granite’ portfolio, a securitization vehicle which was originally formed by NRAM in 2001. As of Jan 31, 2015, Granite held £13.22 billion of mortgage loans funded by £9.05 billion of securities and the remaining balance of £4.17 billion is funded by NRAM.
JPMorgan, which will partner with CarVal Investors LLC in the possible bid, is likely to face stiff competition as the UKAR’s proposed Granite sale has drawn attention from several other firms including The Goldman Sachs Group, Inc. GS, The Blackstone Group L.P. BX, Och-Ziff Capital Management Group LLC and Banco de Sabadell SA. Further, according to Sky News, The Royal Bank of Scotland Group plc RBS is also contemplating a bid.
Amid the gradual improvement of the UK economy, the Granite portfolio seems to be a lucrative investment that has lured the several prospective buyers. Notably, in a letter to Chancellor of the Exchequer George Osborne in March 2015, James Leigh, the executive chairman of UK Financial Investments Limited stated that the market conditions are favorable to initiate a significant sale of the UKAR’s mortgage assets.
The letter highlighted, “The assets held within Granite and more broadly across both NRAM and B&B are increasingly attractive to investors, as they originated pre-crisis and are now benefitting from the recovery in UK house prices and improved affordability as employment and wages grow.”
Osborne, who unveiled the sale plans in March, is seeking for the sale of the mortgages as it would aid in paying down the national debt.
In June, UKAR Chief Executive Officer Richard Banks stated that the sale of the Granite portfolio is expected to be completed in the second-quarter 2016. Credit Suisse Group AG has been appointed to manage the sale.
While we have to wait to see whether JPMorgan manages to outdo other prospective bidders, we believe a winning bid would help the company in diversifying its loan portfolio.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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