Having seen its standing in the U.S. ABS league tables dip in 2004, JPMorgan Securities has revamped its structured finance group, combining the asset-backed and mortgage backed teams under new management. The recent move to name Christine Cole and Bill King as co-heads of U.S. structured finance has the group set to return to the prominent pre-merger position JPMorgan enjoyed in recent years.
The move is expected to pay dividends for JPMorgan in 2005, after a year in which the underwriter has maintained, or even increased, its business in auto loan and credit card ABS, but lagged in the rapidly growing mortgage-related sectors. In fact, despite underwriting more home equity ABS in 2004 than 2003, JPMorgan has been unable to keep pace with the exponential growth experienced by the likes of Countrywide Securities and RBS Greenwich Capital, which both focus primarily on mortgage ABS.
With the integration of the ABS and MBS groups, however, that is expected to change, according to Cole. "Combining Bank One and JPMorgan, we are number one in cards and autos although overall volume [in those sectors] is down in 2004," Cole said.
Also expect JPMorgan to increase its presence in the principal finance sector. "We would like to increase principal finance activity in home equity and in other sectors in 2005," Cole added. "That has become a business where you'll see more principal risk taking going forward."
Merging the group seems the logical choice, considering ABS distribution had largely been done off the firm's MBS sales force. Additionally, the ability to purchase a wider range of mortgage collateral should boost JPMorgan's presence in the home equity sector, where it currently does not crack the top 10 in underwriting volume.
Kirk Farney, who had co-headed conduit operations with Brad Schwartz since the merger closing in July, will take over control of the combined conduit operations. Split between Chicago and New York, the combined conduits of JPMorgan have roughly $45 billion in assets.
Schwartz will be taking on a new role in the principal investment area at JPMorgan, focusing on subordinated ABS, reporting to Patrik Edspar, JPMorgan's head of North American trading.
The term ABS group will continue to be headed by Andrew Dym, a Chase Securities legacy who had headed the group since 2000, although he had worked alongside the departed Scott Davidson for roughly four years. Davidson, who had been promoted to group co-head - as was Cole - shortly after the merger, recently left his position at the bank.
The CDO and interest-rate derivatives groups will not be merged into the structured finance unit, although "the businesses clearly intersect and what's important is that they work together as partners," noted Cole.
Cole began her career at the former First Chicago Capital Markets, later acquired by Bank One, in 1979, moving into ABS ten years later. As a product manager, Cole built the infrastructure for Bank One's conduit business, which at the time totaled just $5 billion in assets.
By contrast, King headed MBS passthrough trading at Donaldson Lufkin & Jenrette until mid 2000, when he jumped to the former Chase Securities to take a similar position and remained in the post-merger JPMorgan.
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