J.P. Morgan Securities Australia Ltd. Assigned #A+# Long-Term, #A-1# Short-Term Outlook Stable

Stocks and Financial Services Press Releases Tuesday May 15, 2018 10:20
SYDNEY--15 May--S&P Global Ratings

SYDNEY (S&P Global Ratings) May 15, 2018--S&P Global Ratings today said it has assigned its 'A+' long-term and 'A-1' short-term issuer credit ratings to Australia-based J.P. Morgan Securities Australia Ltd. (JPMSAL), a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM), held through J.P. Morgan Chase Bank N.A. and its subsidiaries. The outlook is stable, reflecting that on JPM and its other core operating subsidiaries.

The ratings on JPMSAL reflect our view of its position as a core subsidiary of the JPM group. As a result, we equalize the ratings on JPSAL with the 'a+' supported group credit profile of JPM group. We do not assign a stand-alone credit profile to JPMSAL given its strategic importance to JPM group's corporate and investment banking activities in the Asia-Pacific region and its very high level of integration with the wider group. The group's strategy in Australia is to link into and leverage JPM's global platform to provide global solutions to Australian clients and local Australian solutions to global clients. Australia is also the center globally for Australian fixed income, equities, and clearing services.

JPM plans to merge nearly all of its investment banking, fixed income, clearing, and equities activities in Australia into JPMSAL. Currently, the company conducts these activities across four entities. As part of this restructuring, three of these entities--J.P. Morgan Investments Australia Pty Ltd., J.P. Morgan Australia Ltd., and J.P. Morgan Markets Australia Pty Ltd.--will merge into JMPSAL. Post the restructure, JPMSAL will operate four key components of JPM's global strategy in a location that is strategic for JPM. All four of the key businesses are, in our view, highly integrated with the rest of the group from operational, administrative, and infrastructure perspectives.

Examples of operational integration include:
  • About half of the group's investment banking and fixed income activities in Australia are sourced or executed through the group's international network outside of Australia.
  • Investment banking: Lending activities associated with investment banking activities carried out by JPMSAL are booked on the group's balances sheet via J.P. Morgan Chase Bank Sydney Branch (JPMCB Sydney Branch).
  • Fixed income: The group's international network also provides sales coverage to JPMSAL; JPMSAL assists in JPMCB Sydney Branch's liquidity management activities.
  • Clearing: JPMSAL acts as a clearing member on an agency basis on behalf of the group.
  • Equities: Australia is the global center for Australian equities trading and services.

JPMSAL also relies on the group to provide treasury and risk management services. From an administrative and infrastructure point of view, JPMSAL is dependent on payroll, technology (both product specific and infrastructure), and operational services provided by the group globally.

We rate JPMSAL equal to JPM's group credit profile, which includes one notch of uplift for the group's additional loss-absorbing capacity (ALAC), an S&P Global Ratings' concept similar to regulatory total loss-absorbing capacity. Although JPM has not designated JPMSAL as a material legal entity in its single-point-of-entry resolution plan, we believe JPMSAL would benefit from the group's ALAC if the parent was ultimately to fail. This is due to the important role JPMSAL plays in maintaining JPM's global client relationships and its business and financial connections with other parts of the group. A failure of JPMSAL, which is an indirect subsidiary of J.P. Morgan Chase Bank N.A., the group's main commercial banking subsidiary, could have operational, financial, and significant reputational risk for the group.

The stable outlook on JPMSAL matches our outlook on JPM and our expectation that the group will complete its plans to merge J.P. Morgan Investments Australia Pty Ltd., J.P. Morgan Australia Ltd., and J.P. Morgan Markets Australia Pty Ltd. into JPMSAL.

We could lower the ratings if we were to downgrade JPM, reflecting its diminished ability to support its subsidiary if needed.
We could also lower the ratings if:
  • The merger of the four entities does not proceed as anticipated;
  • We no longer consider JPMSA a core subsidiary of JPM, for instance if it engaged in materially riskier activities or if it encountered profitability issues; or
  • If evidence emerged that JPMSAL would likely benefit from the group's ALAC in the event that the nonoperating holding company enters resolution.
We could raise the ratings on JPMSAL if we were to upgrade JPM, reflecting its increased ability to support its subsidiary if needed.

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