JPMorgan Motivates Small Businesses - Analyst Blog

In an effort to motivate small businesses and to reduce unemployment level, JPMorgan Chase & Co. (JPM) on Tuesday started a new plan to slash loan rates on small businesses, who decide to hire new employees.
 
JPMorgan will lower the rate by 0.5 percentage points for every new employee small businesses appoints, with the maximum of three employees.
 
Apart from lowering loan rates, JPMorgan will also provide discounts to small businesses for the opening of checking accounts. The company expects these small businesses to take full advantage of the lower interest rates and help reduce unemployment.
 
The new program initiated by JPMorgan will be applicable to new lines of credit of up to $250,000. However, the existing customers can avail this facility by increasing their line of credit by $10,000 or more. A small business can save up to $4,000 over a period of three years on the balance of $65,000 with the discounts and rate cuts, according to the estimate made by the company.
 
In addition, JPMorgan plans to hold conferences in 11 cities across the country to assist local and small business owners to improve their sales figures and fund their businesses.
 
Small business lending has been a topic of intense discussion since the financial crisis. Many of the U.S. banks, who had taken government funding were pressurized by the public to help reduce unemployment by providing loans to small businesses. Though these banks are still lending, the demand for loans have been very less due to the financial turmoil and they are not able to find enough credit worthy borrowers.
 
Besides JPMorgan, other companies have also started various programs to help small businesses. In November 2009, Goldman Sachs Group Inc (GS) with the help of Warren Buffett had launched a program to provide $500 million of capital to fund small businesses and facilitate education programs. In February 2010, Huntington Bancshares Inc. (HBAN) announced that it expects to double the small business lending over the next three years to $1.5 billion.
 
Earlier this month, Bank of America Corp. (BAC) had announced that it will increase its spending on small and medium-sized and diverse businesses. The company pledged to buy $10 billion of products and services from the small companies over the next half-decade, with a 5% increase in spending every year.

Wells Fargo & Company (WFC) had remained one of the largest providers of credit to the U.S. economy in first quarter 2010 and continued to lend to credit-worthy customers.
 
Lately, JPMorgan along with several other companies such as Capital One Financial Corp. (COF), U.S. Bancorp (USB), PNC Financial Services Group Inc. (PNC) have started giving a second look to the every rejected small business loan.
 
JPMorgan continues to make contributions to the economic recovery by lending to small businesses. In the first quarter of 2010, the company’s loan to small businesses increased 31% year over year to $2.1 billion. Building on the efforts of the Obama Administration, the company has also launched an initiative to increase small-business lending to $10 billion by the end of 2010.
 
With the help of its latest program to cut rates for the small business borrowers, JPMorgan will be able to boost its market share in lending business. This will enhance the company’s revenue as new regulatory reforms may lead to reduced revenue in many of its profitable businesses in the days ahead.
 
Additionally, we anticipate continued synergies from JPMorgan’s diversification and strong capital position, but a pressurized credit quality and reduced levels of client activity will be a drag on the future earnings. This justifies JPMorgan’s Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. Hence, we maintain our Neutral recommendation on the stock.