JPMorgan backs away from private prison finance

JPMorgan backs away from private prison finance

NEW YORK (Reuters) – JPMorgan Chase & Co has decided to stop financing private operators of prisons and detention centers, which have become targets of protests over Trump administration immigration policies.

FILE PHOTO: A view of the exterior of the JP Morgan Chase & Co. corporate headquarters in New York City May 20, 2015. REUTERS/Mike Segar

“We will no longer bank the private prison industry,” a company spokesman told Reuters. The decision is a result of bank’s ongoing evaluations of the costs and benefits of serving different industries, he said.

JPMorgan is one of several banks that have underwritten bonds or syndicated loans for CoreCivic Inc and Geo Group Inc, the two major private prison operators in the United States. In 2018, banks, including Bank of America Corp and Wells Fargo & Co raised roughly $1.8 billion in debt over three deals for CoreCivic and GEO Group, according to Refinitiv data.

Wells Fargo said in January that it is reducing its relationship with the prison industry as part of its “environmental and social risk management” process.

“Our credit exposure to private prison companies has significantly decreased and is expected to continue to decline, and we are not actively marketing to that sector,” Wells Fargo said in its “Business Standards Report” for 2018.

Prison finance is small business for JPMorgan, the biggest bank in the U.S. by assets. JPMorgan was a leader in 1,153 loan deals worth $354 billion across all industries, according to Refinitiv data.

Prison companies account for about 10 percent of federal and state prison beds, according to Moody’s Investors Service. But about two-thirds of people held by U.S. Immigration and Customs Enforcement are in private detention centers, S&P Global Ratings estimated last year.

Moody’s and S&P Global have speculative grade, or junk, credit ratings on CoreCivic and GEO Group partly because their revenues are at risk to changes in government policy and public scrutiny of companies profiting from detention. [reut.rs/2H4JOf5]

After the Obama administration in August 2016 directed the Bureau of Prisons to phase out federal use of private prisons, shares of both companies plunged more than 40 percent. One month after Donald Trump became president, the order was rescinded and the stocks rebounded.

Activism against the financing of private prisons heated up after revelations that undocumented minors were being separated from their adult parents or guardians and being held in detention centers.

TRUMP REVERSES POLICY

The Trump administration reversed its separation policy after a public outcry and many children were released from detention centers and reunited with their parents. Others were sent to foster homes or to live with relatives in the United States.

CoreCivic issued a statement in June saying none of its facilities housed children without the supervision of a parent.

Pablo Paez, Geo Group’s executive vice-president of corporate relations, wrote in a June 2018 email to Reuters that neither have they housed unaccompanied children .

CoreCivic changed its name from Corrections Corporation of America in October 2016. It said the rebranding was to highlight its strategy to transform its business “from largely corrections and detentions centers to a wider range of government services.”

In 2018 prisons and detention centers still accounted for 87 percent of CoreCivic’s net operating income, according to a recent presentation from the company to investors. It had 72,833 beds in prisons and detention centers.

JPMorgan’s move away from the industry comes after activists have challenged Chief Executive Officer Jamie Dimon at bank’s last two annual meetings over its financing of prison companies.

Protest groups have also appeared regularly outside of Dimon’s Manhattan apartment. On Valentine’s Day, a group appeared with a mariachi band and signs that begged the executive to “break up with prisons.”

At the May 2017 annual meeting, Dimon promised to look into prison finance. In June, Dimon and the Business Roundtable, a group of CEOs that he chairs, issued public statements calling for immigration reform and an end to the Trump administration policy of separating minors from their parents.

JPMorgan’s move could prove mostly symbolic if other lenders or investors in prison companies do not take similar steps. Activists learned that lesson last year after they pressured financiers of gunmakers in the wake of a shooting at a Florida high school.

Bank of America Corp, Citigroup Inc and BlackRock Inc, the world’s largest asset manager, last year said they were limiting business with gunmakers in various ways. But others, including Wells Fargo, declined to follow suit and filings show firearms companies retain access to a wide range of financing options. [reut.rs/2Evd3nn]

(This story corrects company affiliation of Pablo Paez in the 12th paragraph)

Reporting by David Henry and Imani Moise in New York. Additional reporting by Ross Kerber in Boston; Editing by Cynthia Osterman

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JPMorgan keeps key profit goal, says wary of U.S. recession risks

JPMorgan keeps key profit goal, says wary of U.S. recession risks

NEW YORK (Reuters) – JPMorgan Chase & Co on Tuesday maintained its key profit goal for the next three years, but its chief financial officer warned the forecast does not reflect significant risks that could speed the beginning of a U.S. recession.

The logo of Dow Jones Industrial Average stock market index listed company JPMorgan Chase (JPM) is seen in Los Angeles, California, United States, in this October 12, 2010 file photo. REUTERS/Lucy Nicholson/File Photo

Global trade worries as well as Britain’s withdrawal from the European Union, or Brexit, also presented uncertainty for 2019, CFO Marianne Lake said at the bank’s annual Investor Day.

The bank may exceed its key growth targets, Lake said, but the bank’s estimates take a cautious view of future risks.

“The further out you go, the less confidence we have that we won’t see” changes in interest rates and a downturn in the economy, Lake said, when asked why the bank did not raise its target for profitability.

“Recent declines in business sentiment have driven recessionary risk higher,” she said.

Still, she added, “the U.S. economy remains consumer-led, and consumers are strong and healthy.”

The bank projected that returns on tangible common equity (ROTCE), a key profit measure for how well banks use shareholder money, will be 17 percent, the same as last year, according to a slide presentation ahead of the investor day.

JPMorgan shares were down 1.3 percent at $104.72.

JPMorgan is the biggest U.S. bank by assets and its annual commentary is closely watched. It accounts for about 14 percent of U.S. banking industry revenue, according to estimates by analysts at Barclays.

The bank’s outlook dimmed for profits from its corporate & investment bank unit, with a turn on equity of 16 percent, down from a 17 percent target a year ago, according to the slide presentation. The investment bank provided one-third of JPMorgan’s revenues in 2018.

The outlook for the asset and wealth management business took a worse turn, with a 25 percent-plus return on equity in the medium term, down from a target of 35 percent set a year ago. The prior target had been increased from 25 percent two years ago.

Asset managers are faced with pressure on fees from competitors and index-based investing. For JPMorgan, the business accounted for about 13 percent of revenues last year.

Targeted return on equity remained unchanged at 25 percent for consumer and community banking, and 18 percent for commercial banking.

The bank stuck with its previous targets of an expense overhead ratio of 55 percent as adjusted expenses were set to rise this year by $2.3 billion, or 3.6 percent.

The higher expense forecast includes $600 million of new technology investments and $1.6 billion for marketing, front-office hiring, new branches and a new headquarters building.

The additional spending is down from $2.7 billion a year ago, when it boosted the technology budget by $1.4 billion.

  British Prime Minister Theresa May on Tuesday offered lawmakers the chance to vote soon on whether to delay Brexit or go for a potentially disorderly no-deal exit.

Reporting By Elizabeth Dilts, Aparajita Saxena and David Henry; Editing by Anil D’Silva and Jeffrey Benkoe

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