Fitch Assigns Initial 'AA-/F1+' Ratings to J.P. Morgan Securities LLC

Fri Jul 29, 2011 5:26pm EDT

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Fitch Assigns Initial 'AA-/F1+' Ratings to J.P. Morgan Securities LLC

Fitch Ratings assigned an initial 'AA-' long-term Issuer Default Eating (IDR) and 'F1+' short-term IDR to J.P. Morgan Securities LLC (JPMS). JPMS is a wholly-owned subsidiary of JPMorgan Chase & Co. (JPM; rated 'AA-/F1+' by Fitch). The Rating Outlook is Stable. This is the first time Fitch has rated JPMS. See the full list of ratings at the end of this release.

The alignment of JPMS' 'AA-/F1+' long- and short-term IDRs with JPM's ratings reflect Fitch's view that JPMS is core to the global JPM franchise. Fitch believes that the JPMS business is integral to the overall group strategy, its revenue, and is highly integrated within the JPM business. JPMS has benefited from and continues to benefit from financial support from its parent, JPM, in the form of direct capital and funding. Fitch believes this support from JPM will continue and is a key rating driver.

JPMS comprises a significant proportion of the firm's global investment banking (IB) revenues and is a leading U.S. underwriter, advisor and securities broker. The ratings of JPMS are based on its close affiliation with its parent JPMorgan Chase & Co, and as such, any rating actions at the holding company would result in rating actions at JPMS.

JPMS benefits from its relationship with JPM and its affiliates. Fitch believes it attracts more favorable funding terms than a stand-alone broker-dealer. JPMS has higher-than-peer leverage which is mitigated by its ownership and parental financial support. J.P. Morgan Securities LLC (JPMS) is a wholly owned indirect subsidiary of JPMorgan Chase & Co. (JPM). JPMS owns J.P. Morgan Clearing Corp. (JPMCC).

JPMS is a registered broker-dealer and investment advisor with the SEC and a futures commission merchant (FCM) with the U.S. Commodity Futures Trading Commission. It is also a member of the NYSE and other exchanges. JPMS houses JPM's U.S. investment bank, which includes advisory, securities underwriting and trading, capital structures and financial strategies, and sales and trading activities.

JPMS is a primary dealer in U.S. government securities, a market-maker in money market, agency securities and other securities. U.S. securities borrowed and loaned transactions are also conducted via JPMS.

Some OTC derivatives, as a result of the derivative push-out rule under Dodd-Frank will be conducted out of JPMS. Futures and options trading will also be conducted out of JPMS as the firm recently merged an FCM subsidiary into JPMS, consolidating some of this derivatives dealer activity. Other traditional derivatives activity will primarily remain within JPM's main operating bank subsidiary.

JPMCC (formerly Bear Stearns Securities Corp., currently rated 'AA-/F1+', provides securities and futures clearing, customer financing, securities lending and related services. It is a clearing broker on an agency or principal basis for correspondents and customers, including hedge funds, brokers and dealers, and other professional trading firms. It also clears for JPMS. JPM's U.S. prime brokerage business is conducted out of JPMCC. The JPMCC rating is also based on parental support and ownership by JPM.

While JPMS is separately capitalized, much of its capital and funding comes from the parent. Risk management and operations are largely centralized at JPM. JPM manages these functions by business line, such as IB globally rather than by legal entity structure.

J.P. Morgan Securities is a wholly owned indirect subsidiary of JPMorgan Chase & Co. It is a direct subsidiary of J.P. Morgan Broker-Dealer Holdings Inc., which is a direct, wholly-owned subsidiary of JPM. JPMS owns J.P. Morgan Clearing Corp.

Effective Sept. 1, 2010 JPMS converted from a corporation to an LLC. JPMS is managed and operated as part of JPM's global IB franchise with centralized risk, capital, liquidity, and treasury functions. JPMS had total assets of $362 billion and U.S. GAAP equity of $10.3 billion at year-end 2010.

Fitch Ratings has assigned the following ratings to J.P. Morgan Securities LLC:

--Long-term IDR at 'AA-';

--Short-term IDR at 'F1+'.

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com

Applicable Criteria and Related Research:

--'Master Global Financial Institutions Criteria' (Aug. 16, 2010)

--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010).

Applicable Criteria and Related Research:

Short-Term Ratings Criteria for Corporate Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726

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Fitch Ratings
Primary Analyst
Joo-Yung Lee, +1-212-908-0560
Senior Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Committee Chairperson
Leslie S. Bright, +1-212-908-0622
Senior Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com

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