JPMorgan Makes a Big Bet With $20 Billion Loan to AT&T
JPMorgan Chase (NYSE:JPM) is one the leading financial services company in the world and competes with Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C) and Deutsche Bank (NYSE:DB). The company has provided $20 billion bridge loan to AT&T in order to help it in its planned purchase of Deutsche Telekom’s T-mobile USA unit. It is the largest unsecured loan that a bank has ever made to a client. [1]
We have a price estimate of $48.87 on JPMorgan’s stock which is about 7% above the current market price.
JPMorgan is advising AT&T in its attempt to acquire T-mobile and some analysts estimate that the deal could fetch JPMorgan half a billion in fees including advisory fees, interest income, fees from the eventual syndication of the bank’s loan to AT&T and fees for the potential equity offering by AT&T to replace loans at some point in the future assuming that the deal gains regulatory approval and see the light of day. [2]
The huge short term balance sheet risk that JPMorgan is undertaking is compensated by the hefty penalty if the deal breaks down. AT&T has agreed to pay reserves break up fee of $3 billion which is roughly about 7.6% of the deal value and is the largest in M&A history among multi-billion deals. [1]
JPMorgan to gain share of the global M&A market
JPMorgan has ranked in the top 5 for the total value of M&A deals completed for several years now. Last year it ranked third behind Goldman Sachs and Morgan Stanley in M&A advisory but this year JPMorgan is leading the M&A league tables because of the AT&T deal.
We expect JPMorgan to gain market share of the global M&A market as the AT&T deal would significantly boost JPMorgan’s reputation in the market especially among the clients for whom JPMorgan is willing to take huge risks.
See our full analysis for JPMorgan
Notes:- JP Morgan, AT&T Bet Big on Telecom Deal, March 21, 2011, CNBC [↩] [↩]
- AT&T Deal ‘Fee Bonanza’ for JPMorgan, March 22, 2011, The Street [↩]