Frankfurt It took a few years of planning, and now it’s official: JP Morgan is merging its three legal entities in the European Union. “With immediate effect, the units from Germany (JP Morgan AG), Ireland (JP Morgan Bank Ireland LP) and Luxembourg (JP Morgan Bank Luxembourg SA) will be bundled under the new name JP Morgan SE,” said Stefan Behr, the new head of the unit. in conversation with the Handelsblatt.
This step makes JP Morgan SE one of the largest banks in the country. In 2020, the balance sheet total of the German entity, JP Morgan AG, was 244.6 billion euros, which corresponds to an increase of around 180 billion euros compared to the previous year. According to the 2020 annual report, the bank expects an increase of a similar magnitude for 2021, because it was only last year that a large part of the risk positions could be shifted after Brexit.
This would mean that JP Morgan AG alone would have total assets of 400 to 450 billion euros – and could become the fourth largest bank in Germany behind Deutsche Bank, DZ Bank and Commerzbank.
In addition, there are the units from Luxembourg and Ireland. According to the last annual report, the balance sheet total in Luxembourg was around 65 billion; figures for Ireland were not available on request. Due to the different accounting methods according to US GAAP and IFRS, the numbers cannot simply be added up. Nevertheless, JP Morgan SE is likely to compete with Commerzbank in the future, which reported total assets of EUR 506.9 billion in 2020.
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The new unit is a 100 percent subsidiary of the US parent, said Behr. The Dublin and Luxembourg locations will also be branches of the new Frankfurt unit, as will the other twelve European locations including Paris.
It is a question of simplifying the legal structures, said Behr: “This step will not result in any employees being laid off or transferred to other locations.” There are currently several locations, such as Amsterdam, where both JP Morgan AG and the Luxembourg unit are based of the bank are represented by branches. “In the future we will only need one branch at these locations, JP Morgan SE,” said the CEO. The bundling into an SE also means that in future the bank will only have one legal entity in the EU that is regulated.
Payment transactions are a key business area of the bank
Behr has been with US Bank since 1992 and has worked in both London and Frankfurt. At the end of 2020, he was promoted to CEO of JP Morgan AG, succeeding Dorothee Blessing, who was then appointed co-head of European investment banking. The head of Germany, Stefan Povaly, who was appointed at the same time as Behr, will remain in office, as will the country heads of the other EU branches.
Since the planning for the SE had started well in advance, Brexit was not the main driver of the new entity, but it did have an impact. “The units in Germany and Luxembourg have grown very strongly in recent years, also due to Brexit. That’s why there are now all the more advantages of merging the units,” said Behr.
The banker is hoping for growth effects from the new unit in Frankfurt, including in the areas of securities trading, payment transactions and corporate customer business for medium-sized companies.
“Security Services is a business that thrives on economies of scale,” says Behr. So far, the Luxembourg unit has increasingly managed fund companies, while the focus in Frankfurt has been on corporate pension funds. The merger will increase volume and make the bank more attractive and efficient for customers, said the CEO.
According to Behr, the bank is investing “significantly” globally in the area of payment transactions in order to expand the services for its customers. “We’re looking for partnerships in order to offer our customers the most complete range of products and services possible,” says Behr. This is an important business area for JP Morgan.
It was already known last year that the US bank wants to take over the majority of the payment division of the car manufacturer Volkswagen. Behr announced that this transaction should be completed in the course of the year.
Further growth expected
In the corporate customer business, Behr confirmed that the major bank primarily wants to develop medium-sized companies. “Our investment and corporate customer business has traditionally been geared towards large customers,” he said. In the future, the bank also wants to cover the customer segments below. “We call this area Corporate Client Banking and Specialized Industries. In recent years we have significantly increased the number of employees in this segment. I’m hoping for significant growth potential there,” said the CEO.
The major US bank is thus moving in the core business of Deutsche Bank and Commerzbank. However, he does not see his bank as a competitor: “I do not see that we are competing with the established institutes here in Frankfurt for German business in corporate client banking and specialized industries. We’re looking for areas where we can add value to customer relationships,” said Behr.
According to Behr, the major US bank had “a record year” in the past year, which was mainly driven by strong investment banking. The head of the new Frankfurt unit is also expecting further growth this year: “Due to inflationary tendencies, the many corona cycles and the uncertainties caused by geopolitical tensions, we expect significantly more volatility on the markets this year”. But it is precisely then that JP Morgan has always been well positioned: “The basic trend is therefore growth, but with more volatility.”
More: US bank JP Morgan wants to take over 75 percent of Volkswagen Payments, the automaker’s payment services subsidiary