JPMorgan Chase & Co., which has been inactive for most of the past year writing Texas municipal bonds, recently plans to revive its work with state and local governments.
The firm, the No. 2 underwriter in the $4 trillion market for U.S. municipal debt, joined a handful of major banks in exiting Texas where two new GOP-backed laws take effect on Sept. 1, 2021. The measures target Wall Street over what local officials say are restrictive policies related to the arms and energy industries.
But Wednesday brought a key development that opens the door for JPMorgan to grow its muni business in Texas, one of the three most lucrative U.S. public-finance markets. In short: When Texas Comptroller Glenn Hegar completed a months-long inquiry into the new law, he did not include the bank among the 10 financial firms he thought would most likely disrupt the oil and gas industry.
It’s a big win for the New York-based bank, the largest muni underwriter on a list of more than 150 firms targeted by the Hagar investigation.
If that cloud is lifted, JPMorgan plans to start bidding again on public contracts, including municipal bonds, a person familiar with the matter said. In order to begin writing muni deals in Texas, the bank must first submit a letter certifying compliance with firearms and energy laws to the Texas attorney general’s office, he said. The exact time of application must be determined.
According to the person, the bank will begin writing what are known as competitive bond deals for Texas and surrounding areas.
JPMorgan has not cut any public financing operations in Texas since the laws took effect, and bankers have been sending financing lines to municipalities there to maintain relationships with clients, the person said.
The bank’s return could also be a boon for Texas municipalities, which have been unable to work with big banks — which have extensive investor relationships — on their bond transfers.
According to a study by a University of Pennsylvania professor and Federal Reserve economist, the absence of large banks in Texas due to the two new laws “had a significant negative impact on borrowers.”
Bank of America Corp., the No. 1 U.S. muni underwriter, and sixth-ranked Goldman Sachs Group Inc. have not entered into any deals in Texas or their cities as of September 2021.
Texas gun law says states can’t do business with companies unless they can prove they’re not “biased” against gun components. JPMorgan does not fund companies that make military-style weapons for civilians.
Citigroup Inc. also suspended its muni bond business after the law takes effect in 2021, but resumed writing in November. The bank continued to write bond deals, the seventh largest in Texas muni deals this year, after taking first place in 2020, according to data compiled by Bloomberg.
JPMorgan has long argued that it can comply with gun laws. By September 2021, JPMorgan said it should allow its businesses to verify compliance with firearms laws. But he said legal risk from an “ambiguous” law prevents most businesses from bidding with Texas public entities.
In May, Foley & Lardner LLP, the law firm representing JPMorgan, sent a letter to Texas attorney general’s office officials saying it would ensure the bank complied with the rules.
“The risk-based framework does not discriminate or prohibit JPMC from engaging with any military entity or arms trade association ‘based on its status as a military entity or arms trade association’ for other than traditional business purposes,” the letter said.
Amanda Albright and Daniel Moran, Bloomberg
