America’s largest bank said it was barred from underwriting Texas municipal bond deals after the state passed a law banning government work with banks that restrict doing business with the industry. fire arms.
Due to the legislation, JPMorgan Chase & Co. will not bid with public entities in Texas, a key market where the bank underwrites $ 3.6 billion in municipal debt sales in 2020.
Texas-based borrowers sold more than $ 58 billion in bonds in 2020, the most of any state after California, according to data compiled by Bloomberg. As part of bond deals, borrowers often hire banks in advance and pay them a fee to secure sales.
This is one of the first signs of the fallout from the Texas GOP’s efforts to punish Wall Street banks for their restrictive gun policies, with gun-friendly state politicians seeing a a way to retaliate against them for weighing on America’s tense cultural wars.
The law prohibits government entities from working with a company that “discriminates” against firearms and ammunition companies or organizations, according to Republican Gov. Greg Abbott, who has touted the legislation.
“While our business practices should allow us to certify, the legal risk associated with this ambiguous law currently prevents us from bidding on most business with Texas public entities,” said Patricia Wexler, spokesperson for the bank, in a press release sent by email.
The law was enacted as part of a wave of GOP laws, such as a law that restricts abortion rights and another that punishes cities that fund their police services. As part of Senate Bill 19, companies are required to provide written verification that they are complying with the law, which applies to a contract worth at least $ 100,000.
JPMorgan has been ranked as the seventh largest out-of-state agreement underwriter, which is one of the largest markets for muni-bond business thanks to its rapidly growing population.
This legislation could be detrimental to municipal issuers in Texas, depending on the number of banks “captured” by the new law, said Martin Luby, professor of public affairs at the Lyndon B. Johnson School of Public Affairs at the University of Canada. Texas. in Austin. “There is concern that the state and local governments will have access to so many investors if the big banks do not participate in these transactions.”
Earlier this year, JPMorgan CEO Jamie Dimon told a congressional committee his bank would not fund arms companies that make military-style guns for consumers.
However, the effect of the law is not entirely clear in Texas.
Another bank under the law, Citigroup Inc., said in June that it did not believe it was affected by the law. In 2018, Citi said it would ban retailers who are customers of the bank from offering large-caliber inventory or selling firearms to people who have not passed background checks or who have under 21 years old. The bank was ranked as the largest underwriter of Texas municipal sales in 2020, when it was credited with underwriting $ 6.3 billion in long-term sales.
Bank of America also announced in 2018 that it would stop making new loans to companies that manufacture military-style rifles for civilian use. His policy came after dozens of employees lost family members or suffered other trauma from mass shootings in recent years.
Bank of America has been credited with underwriting $ 3.8 billion in municipal debt sales in Texas in 2020, making it the fifth largest underwriter in the country. A spokesperson for Citi did not comment immediately on Thursday. Representatives for Bank of America and UBS did not respond to a request for comment.
This is not the first time that municipalities or states have sought to punish Wall Street by cutting them off from new business. In 2018, Louisiana officials banned Bank of America and Citi from selling bonds, citing their restrictive gun policies.
And states like California in 2016 suspended Wells Fargo & Co. from bonds over the bank’s fake accounts scandal.
The law is already blocking new business for JPMorgan.
This week, JPMorgan was replaced by UBS Group AG as underwriter of a bond issue for the Decatur Hospital Authority of Texas, a local agency, according to a bond filing Thursday. The authority is a branch of a Texas city of 7,000 people that operates the Wise Health System. Decatur is the seat of Wise County and is located approximately 65 miles northwest of Dallas.
In July, the agency revealed that it plans to put JPMorgan in the role of senior manager underwriter on a financing that could include the sale of bonds of up to $ 150 million.
The authority cited “the uncertainty surrounding the implementation of the new legislation passed by the state of Texas”, although it did not specify which law.
Todd Scroggins, chief financial officer of Wise Health, did not respond to a request for comment, nor did a spokesperson for the hospital.
Amanda Albright and Danielle Moran, Bloomberg