CEO James Dimon says that there are more opportunities for financial institution buyouts such as Monday's private-equity buy of
Speaking during Wednesday's analyst earnings call, the chairman of the New York banking giant says buyouts of finance companies have been rare, but he sees them as doable.
"Financial companies, if you leverage them up, can create tremendous good will," said Dimon. "It's hard to leverage them in general, but there will always be exceptions to that."
A J.P. Morgan spokesman declined to comment and said Dimon was unavailable to elaborate.
Dimon's remarks come on the heels of Monday's announcement that private equity shops J.C. Flowers and Friedman Fleischer & Lowe will pay $60 a share, or $25 billion, in cash for Sallie Mae. Backers of the deal include
Bank of America
and J.P. Morgan, each of which will each invest $2.2 billion and own a 24.9% stake.
The deal is unique for private equity shops because financial institutions, which need to limit their debt loads, have been thought to be outside the scope of buyout shops. Loading a company up with debt is the typical modus operandi for private equity firms, but such highly leveraged acquisitions for a financial institution might impinge on the lender's credit rating and increase the cost of making loans.
The Sallie Mae deal will require shareholder and regulatory approval, but if it goes through it might lead to other financial companies being put in the crosshairs of private equity buyers.
Providing loans to students can be a very lucrative business, though some practices recently have come under legal fire. In New York, Attorney General Andrew Cuomo has questioned the ethical conduct of Sallie Mae (it has agreed to a $2 million settlement) and dozens of other student lenders.
Another firm, student loan provider Student Loan Xpress, which is owned by
, has been the subject of a Cuomo probe into alleged kickbacks. It recently suspended three top execs while it began investigating.
Student Loan Xpress has agreed to pay some $2.5 million in a settlement with the New York attorney general. Lenders including College Loan Corp. and Access Group are also being investigated, according to published reports.
Unrest in the sector might serve as an entry point for private equity investors who see a chance to bag companies cheaply, clean them up and sell them off. For banks such as J.P. Morgan and BofA, the investment serves as an untapped line of business in which stable gains can be had and another arrow can be added to the financial services quiver.