JP Morgan Powers Up Arizona

On Friday, JP Morgan Chase & Co. (JPM - Analyst Report) said it increased loans and lines of credit to firms based in Arizona during the second quarter. The loan amount increased to about $400 million, which served more than 830 small and medium-sized Arizona businesses.

According to JP Morgan, it extended $338 million for 598 loans to mid-sized companies, corporations and government and non-profit agencies, up 58% sequentially. The total loan origination increased 49% sequentially to $59.9 million in 236 small business loans.

During the quarter, the company lent nearly $150 billion nationally to consumers, corporations, small businesses, municipalities and non-profit organizations. It also directed approximately $15.1 billion to small and medium-sized firms across the country, up 50% from the prior quarter.

After providing $5.3 billion in auto loans and leases to more than 544,000 vehicles during the quarter, JP Morgan claimed to be the largest auto lender in the country in the first half of 2009.

JP Morgan is in a relatively good shape from a capital perspective. Management remains focused on managing asset levels efficiently during this vulnerable period of market stress. We expect the company’s capital position to be a major differentiator going forward vis-à-vis its peers as it implies a lower risk of additional capital raises and more opportunity for market share gains.

JP Morgan repaid the full $25 billion in preferred capital received as part of the Troubled Asset Relief Program (TARP) during the quarter. Its loan loss reserves are now about double that of the overall industry. The company further strengthened its credit reserves by $2 billion to $30 billion. As a result of this addition to reserves, JP Morgan saw an extremely high loan loss coverage ratio of 5%. We expect the company to continue build capital over the next couple of years, resulting in a better capital position.

We expect continued synergies from the company’s diversification and strong capital position, though increasing provisions and worsening credit quality will be a drag on upcoming results.

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