JPMorgan Chase’s plan to
In expanding into states, such as Virginia, Pennsylvania and Massachusetts, where it has never had a physical presence, the nation’s largest bank is now eligible to pursue the loan and deposit business of more state and local governments. Most states require a bank to operate at least one branch locally if it wants to compete for state and local government contracts.
The company unveiled the branch expansion plans early last year, but it wasn’t until last week, at its annual investor day, that company officials first discussed opportunities in serving municipalities.
Michael Nevins, the head of government banking in the commercial banking division, called the branch expansion a “once in a lifetime opportunity” to develop relationships with more state and local governments.
“We’ll probably go into 10 new states over the next couple of years,” he said.
JPMorgan estimates that when the expansion is completed, it will have access to roughly 900 potential new clients. To ready itself for the marketing push, the bank plans to hire new teams of government bankers, increasing the size of Nevins’ group by roughly 20%.
Many of the biggest banks reduced their holdings of municipal deposits when changes to federal liquidity requirements made them less valuable than consumer deposits. But with banks of all sizes eager to add low-cost deposits to help fund loan growth, government deposits are suddenly looking more attractive.
Still, JPMorgan Chase can expect to face stiff competition for municipal business, particularly from small local banks.
“They’re going to have to fight for it,” said David Nasca, CEO of the $1.4 billion-asset Evans Bancorp in Hamburg, N.Y. “Municipalities like to do business with local players.”
In most states, a bank must operate at least one bank to become designated as a Qualified Public Depository, Nevins said. Once that designation is achieved, a bank can submit bids for contracts for any type of state or local government entity, including cities, counties, public universities, school boards and hospital authorities.
Virtually all banking contracts for state and local governments are solicited through a request-for-proposals system, Nevins said. That contrasts with most other banking business, which is typically won through word of mouth and personal negotiations.
Local governments’ demand for bank loans has increased in recent years. In 2014, bank loans to local governments totaled $128.6 billion. Three years later, it had reached $190 billion, according to Federal Deposit Insurance Corp. data compiled by FedFIS. Volume declined a bit last year but still topped $187 billion.
JPMorgan intends to seek all types of business, and won’t limit itself to lending and deposit-taking. It could, for example, provide lockbox facilities, capital markets financing, asset management and leasing for vehicle fleets, said Janet Yoo, a JPMorgan spokeswoman.
JPMorgan plans to open as many as 400 branches in new markets over the next several years.
It received its first new Qualified Public Depository designation in December in Virginia after it opened a branch in Arlington. The bank also recently opened its first branches in Massachusetts, Pennsylvania and Washington, D.C., and is said to be eyeing expansion into Maryland, Minnesota and Tennessee. The company has not disclosed all the details of its expansion plans.
Nevins said that while the consumer bank takes the lead on making decisions about where to open new branches, the government lending division provides input during the process.
“Obviously the consumer bank has to drive it, because that’s their business,” he said.
Bank of America is also opening scores of branches in new states, including Indiana, Ohio and Utah. But the Charlotte, N.C., company has not said one way or the other if it intends to bid on state and local government work. A BofA spokeswoman declined to comment on the bank’s plans.
