(Bloomberg) -- JPMorgan Chase & Co. has hundreds of millions of dollars riding on the fate of WeWork across client portfolios and its own books. And then there’s the matter of the bank’s reputation.
The biggest U.S. bank is leading discussions about a $5 billion debt package to help the office-sharing company avoid running out of cash as soon as next month. It’s a long way from the celebratory initial public offering the firm thought it’d be leading as a reward for years of investment from the bank and its clients.
JPMorgan funds are among We Co.’s largest shareholders, trailing only SoftBank Group Corp., the company’s co-founders and venture capital giant Benchmark Capital. That’s taken the bank’s asset management clients on a wild ride with more than $1 billion of gains erased as We’s valuation peaked and plunged this year. Those stakes give yet another incentive to help turn WeWork around, on top of the hundreds of millions of dollars that JPMorgan has lent to the office-sharing company and co-founder Adam Neumann.
The bank’s executives declined to detail its exposure to WeWork or describe the firm’s due diligence on its relationship on an earnings conference call Tuesday, only saying it wasn’t material in the quarter. The topic didn’t come up on the subsequent call with analysts.
“I was disappointed there weren’t any comments on WeWork,” Edward Jones analyst Jim Shanahan said in an interview. “It’s been pretty top of mind and it would’ve been helpful if they’d actually detailed what their actual credit exposure is. Something just to give us a little bit of help with regards to this pretty sizable exposure.”
The bank’s lead role in the rescue package stands in contrast with Goldman Sachs Group Inc. That firm, which invested its own money in WeWork and was set to lead the IPO with JPMorgan, isn’t involved in the latest lending discussions, people briefed on the matter said.
JPMorgan’s stance reflects the combination of financial and reputational interests as well as Jamie Dimon’s mantra that the bank “be there in good times and bad” for its clients. JPMorgan’s chief has also been known to throw around the weight of his firm’s $3 trillion balance sheet to win clients and to get deals across the finish line.
The firm indeed used several business lines in the pursuit of WeWork, under the premise that its IPO would not just be lucrative in its own right but one of many deals for an acquisitive landlord and frequent borrower -- as well as a key piece in a flood of SoftBank-backed offerings that could vault the bank’s status in Silicon Valley.
Among JPMorgan’s exposures to the company:
It’s the lead lender on WeWork’s $650 million revolver loanIt’s a lender, along with UBS Group AG and Credit Suisse Group AG, on a $500 million loan to Neumann backed by WeWork sharesThe bank has made $97.5 million in mortgages and other loans to Neumann
In good times, major investment banks’ ability to grab multiple pieces of an exciting startup’s financial picture is seen as an easy win for all parties. When things go south, it leaves the banks contemplating what represents throwing good money after bad, and the potential ripple effects from walking away -- such as angry asset management customers.
JPMorgan funds secured the majority of their stake at valuations below $5 billion, meaning its clients were still up on their investments at the latest ranges being discussed before the IPO was pulled. The bank’s entities owned more than 5% of We Co., according to filings.
While JPMorgan has the closest ties to WeWork, the turmoil may be more apparent in other banks’ third-quarter results. Earlier this month, Jefferies Financial Group Inc. said it wrote down the value of its investment in We by $146 million. Goldman Sachs, which reported Tuesday, probably also took a writedown on its stake in WeWork after plans for the IPO collapsed.
A JPMorgan spokesman declined to comment.
WeWork’s presence as a major lessee of commercial real estate also opens the door for indirect exposure from lending to buildings that are counting on the company as a tenant. JPMorgan is the third-biggest CRE lender among U.S. banks, according to data from Bloomberg Intelligence.
One alternative to the JPMorgan-led deal is a bailout that hands control to SoftBank. No one has more at stake than SoftBank, which is already WeWork’s biggest shareholder and has poured billions into the firm.
(Updates with comments from executives, analyst starting in 4th paragraph.)
--With assistance from Sridhar Natarajan.
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