JPMorgan's Exposure to GM: What You Don't Know

It would be natural to expect JPMorgan Chase ( JPM) to suffer some serious collateral damage from all the turmoil in the auto industry, but the bank's shareholders don't have a whole lot of information to go on.

General Motors ( GM) Monday became the second of the Big Three auto companies to file for bankruptcy this year. Giant suppliers like Delphi and Visteon have also sought protection from creditors, and GM's finance affiliate GMAC has been bailed out by the government.

JPMorgan is widely understood to be one of the biggest lenders to the U.S. auto industry, if not the single biggest. But CEO Jamie Dimon, when asked about the issue on the bank's first quarter conference call, said total losses in a worst-case scenario would be relatively small.

"The three companies, our total exposure -- in other words, how much can we possibly lose at the far end -- it would be well less than $1 billion," Dimon said, though he noted this did not include exposure to auto finance companies and suppliers.

Dimon has a reputation for being among the most forthright of bank CEOs, so his comments should give some comfort to shareholders. Still, finance affiliates like GMAC and Ford Motor Credit are large and complex, and their relationship to the manufacturers is far from clear cut. The GMAC exposure, for example, includes a nearly $10 billion structured finance vehicle called New Center Asset Trust, according to data from Thomson Reuters. So by leaving out finance company exposure, Dimon could be leaving out quite a lot.

Also worrisome is that -- as is typical with banks -- regulatory filings provide little if any information on who JPMorgan lends to, or whether those exposures are hedged.

A JPMorgan spokesman declined to elaborate on Dimon's comments.

Underwriting data from Thomson Reuters provides some clues, showing JPMorgan is the lead or joint-lead underwriter on some $105 billion worth of outstanding bonds and loans to GM, Chrysler and Ford Motor Co. ( F) and their finance affiliates.

JPMorgan was also lead or co-lead underwriter on about $6.8 billion in outstanding bonds and loans to Delphi and Visteon, according to Thomson Reuters.
GM Through the Years

These figures only amount to circumstantial evidence, however, as the fact that JPMorgan underwrote all this debt does not technically mean it owns any of it. Other underwriters own a share in much of the debt, and, particularly in the case of the bonds, a large portion was sold to hedge funds and other large money managers.

Still, a JPMorgan-led group of banks was largely unsuccessful in selling off a $12 billion loan in 2007 to finance Cerberus Capital Management's purchase of Chrysler in 2007, according to several reports at the time. Other lenders on that deal were Citigroup ( C), Morgan Stanley ( MS), Goldman Sachs ( GS) and Bear Stearns, though JPMorgan assumed Bear's exposure when it bought the faltering firm the following year.

The banks apparently hedged a good deal of this exposure by buying credit default swaps of Ford and GM. A report by bond research firm CreditSights in 2007 noted a sudden rise in credit default swaps on Ford and GM that July, which it attributed to bank hedging activity as efforts to sell the Chrysler debt ran into trouble.

"Long GM and Ford protection trades were some of the only good proxies for hedging the Chrysler exposure that these banks were about to get stuffed with," the report stated, according to a Bloomberg report at the time.

Got that? First, a group of banks led by JPMorgan made a $12 billion loan. Then they tried to sell it, but couldn't find many buyers. So they dipped into the unregulated, opaque credit default swaps market to try and buy protection -- except that they couldn't find the CDS they wanted, so they had to buy similar ones.

That complex, undisclosed multibillion dollar maneuver is just one piece of the massive puzzle that is JPMorgan's exposure to the U.S. auto industry.

In other words, JPMorgan shareholders, just cross your fingers, and hope Jamie Dimon is telling you everything you need to know.