JPMorgan exits municipal swaps business
NEW YORK (Reuters) - JPMorgan Chase & Co said it is shuttering a unit that structured interest rate swaps for municipal borrowers, as regulators scrutinize the bank's role in the business.
The municipal bond market has been rocked by an antitrust probe and the near bankruptcy of Alabama's most-populous county.
The move to close down the business comes as the U.S. Justice Department and the Securities and Exchange Commission investigate JPMorgan over the sale of certain derivatives and investment contracts to municipal issuers. A JPMorgan spokeswoman declined comment on the investigations.
In a memo to employees, Matt Zames, JPMorgan's head of rates, foreign exchange and municipal bonds, said the returns from the business "no longer justify the level of resources we have allocated to it."
As part of the shake-up, JPMorgan is also tightening controls around its broader tax-exempt capital markets unit including reducing external counsel and enhancing credit standards and compliance policies. The municipal swaps business is part of that unit.
The reorganization will cut the number of JPMorgan offices that handle tax-exempt capital markets to 10 from 19. This will affect about 15 people, most of whom will be given the option to relocate.
Zames said in the memo that the municipal swaps group falls within a portfolio of businesses that are being reviewed by Steve Black and Bill Winters, co-chief executive officers of the investment bank.
Wall Street marketed unregulated derivatives as a way for municipalities to save money.
Sales of derivatives to cities, towns and school districts provided banks with fees as earnings from arranging sales of tax-exempt bonds used to build schools, roads and other public works.
The financing backfired this year as fallout from the global credit crisis caused borrowing costs to soar.
(Reporting by Sweta Singh and Elinor Comlay; Editing by Derek Caney)
