JPMorgan Chase & Co., which has largely been absent from the Texas municipal bond underwriting business for the past year, plans to revive its work with the state and its local governments soon.
The firm, the No. 2 underwriter in the $4 trillion market for U.S. municipal debt, joined a small group of big banks in pulling out of Texas after two new GOP-backed laws there take effect there on Sept. 1, 2021. The measures target Wall Street for what local officials said were restrictive policies related to the firearms and energy industries.
However, Wednesday brought a key development that opens the door for JPMorgan to grow its municipal business in Texas, one of the three most profitable US public finance markets. In short: Texas Comptroller Glenn Hegar, concluding a months-long investigation mandated by the new law, did not include the bank among 10 financial firms he believes are boycotting the oil and gas industry.
This will be a major victory for the New York-based bank, which was the largest muni insurer on a list of more than 150 firms that were caught in the Hegar probe.
With that cloud lifted, JPMorgan intends to start bidding again for public contracts, including municipal underwriting, according to a person familiar with the matter. To begin underwriting muni deals in Texas, the bank must first submit a letter verifying its compliance with firearms and energy laws to the Texas attorney general’s office, the person said. The exact time of submission is to be determined.
The bank is likely to resume underwriting for Texas and its localities by offering bids in what are known as competitive bond deals, where banks buy the debt through an auction, according to the person.
JPMorgan did not cut any public finance work in Texas after the laws took effect, and bankers continued to send financing pitches to municipalities there to maintain client relationships, the person said.
The bank’s return is also potentially a boon to Texas municipalities, which have been unable to work with some of the biggest banks — with the widest network of investor contacts — on their bond deals.
The absence of large banks from the Texas underwriting market due to two new laws has resulted in “major negative effects for borrowers,” according to a study by a University of Pennsylvania professor and an economist at the Federal Reserve.
Bank of America Corp., the No. 1 U.S. underwriter, and Goldman Sachs Group Inc., ranked sixth, have not handled any deals from Texas or its cities since September 2021.
Texas’ gun law says its governments can’t work with companies unless they verify they don’t “discriminate” against firearms entities. JPMorgan does not finance companies that make military-style weapons for civilians.
Citigroup Inc. also suspended municipal bond work after the law took effect in 2021, but it was able to revive its underwriting work in November. The bank continues to sign bond deals and is the seventh-largest underwriter of Texas muni deals this year, after ranking first in 2020, data compiled by Bloomberg show.
JPMorgan has long argued that it can comply with firearms law. In September 2021, JPMorgan said its business practices must allow it to certify compliance with the firearms law. But she said legal risk from the “vague” law kept her from bidding on most businesses with Texas’ public entities.
In May, Foley & Lardner LLP, a law firm representing JPMorgan, sent a letter to officials at the Texas attorney general’s office saying it believes the bank can verify compliance with the laws, marking a key step in turning the bank around. .
“JPMC’s risk-based framework does not discriminate against or prevent JPMC from doing business with any firearms entity or firearms trade association ‘based solely on its status as a firearms entity or firearms trade association’ ‘ without a traditional business purpose,” the letter said.
Amanda Albright and Danielle Moran, Bloomberg