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CIT’s loss is J.P. Morgan’s gain Print E-mail
Friday, 11 September 2009

By John Goff

While CIT has managed to stay out of bankruptcy so far, the troubles at the commercial lender have created an opening for rivals.

Factors such as Rosenthal & Rosenthal and Sterling Factors have reportedly been swamped with new credit requests from CIT clients worried about their assets. But larger players stand to benefit more from the financial woes at CIT.

J.P. Morgan Chase tops that list. Granted, the bank is a secured and unsecured creditor to CIT, and thus would get singed if the commercial lender goes bust. But CEO Jamie Dimon claims a CIT bankruptcy would not have a material effect on Morgan’s P&L.

And while Dimon has been rumored to be eyeing some of CIT’s assets, possibly even the entire company, he may not need to buy the business to win new business. The fact is, Morgan appears only too happy to fill the lending void created by CIT’s struggles. In recent months, the banking giant has reportedly been poaching some of CIT’s customers. Indeed, under commercial banking boss Todd Maclin, J.P. Morgan appears to be dramatically ramping up its lending to small- and medium-sized companies.

Certainly, the numbers would seem to back this up. The commercial banking unit at J.P. Morgan funneled $15 billion to 21,000 SMBs in the second quarter, either as loans or lines of credit. That’s a 50 percent increase from the previous three months. Specifically, the bank loaned $13.5 billion to 16,451 mid-sized businesses, corporations, government entities and not-for-profits. It also loaned $1.5 billion to over 4,000 small businesses.

"There's been a lot of flight-to-quality,” Maclin told Reuters. ”People are definitely moving business to our firm."

It appears that Morgan has squarely planted its flag in CIT’s sandbox. And why not? The September 2008 acquisition of Washington Mutual - initially maligned in the press -- could prove to be a huge help to Morgan. The thrift has always done a fair amount of lending to smaller businesses, including property loans. And commercial real estate is an area Morgan will likely be pushing into over the next few months. What's more, WaMu has given the bank an established branch network on the West coast -- something it lacked before the deal.

And Maclin thinks Morgan can reel in even more clients while smaller rivals, such as CIT, flounder. "There's definitely a full-fledged recession going on in (some of) those markets,” he told Reuters. “But we find there are a number of companies that are concerned about their banks and looking for an alternative.”

If so, the bank’s relatively solid balance sheet could prove to be a big asset. "By keeping our nose clean,” Maclin said, “we're open for business right now at a time when frankly a lot of our competitors are distracted."

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