Banks are making “irrational” commercial and industrial loans as they seek higher-yielding assets and the supply of quality borrowers is low, said JPMorgan Chase & Co.’s Doug Petno.
“Just in the last several months we’ve seen some irrational behavior, in our view, in terms of structure and price,” Petno, chief executive officer of commercial banking, said today at an investor conference at the firm’s New York headquarters. “There’s a lot of capital chasing a finite amount of opportunities.”
Commercial and industrial loans jumped 12 percent in 2012 to $1.51 trillion, the largest increase among loan categories, according to data from the Federal Deposit Insurance Corp. Petno’s unit outpaced the industry in quarter-over-quarter C&I loan growth in each period of 2012, according to his presentation today.
“It’s fiercely competitive,” Petno said. “Any really high-quality loan opportunity, all the usual suspects are competing.”
JPMorgan, the biggest U.S. bank by assets, had $73.6 billion in C&I loans as of Dec. 31, according to the presentation. Health-care companies made up 14 percent of that total, with state and municipal governments and consumer products companies each accounting for 9 percent.
Petno said his bank’s controls will help it avoid getting pressured into making risky loans, including quarterly meetings that include reviewing “crazy transactions” in the industry. JPMorgan CEO Jamie Dimon has made maintaining credit quality a priority over growth, Petno said.
“We’ll be tested and tempted, but this place really has a proven model,” Pento said. “We’ve got tremendous confidence in our track record and our ability to hold the line.”