JPMorgan Bulking Up Its Tech Banking Team Is Reason for Investors to Cheer
JPMorgan Chase (NYSE: JPM), America's largest bank by assets, recently announced the hiring of five new bankers to bulk up the tech and venture capital banking group it launched in 2019. While banks make new announcements all the time about launching different business lines and hiring new bankers, this recent announcement by JPMorgan is a bigger deal in my opinion because tech banking is such a great business and also such a niche business. This is also a unit that JPMorgan investors should pay attention to, because the bigger and more material to earnings it gets, the better it could be for the bank.
Tech and venture capital banking is a niche segment of banking, meaning it's a specialized segment of the market that only a handful of banks offer. It requires lenders with specialized skills and relationships with venture capitalists, and within the start-up ecosystem. It can also be very risky as start-ups have a high failure rate. However, if done correctly, tech banking can be tremendously profitable.
On the venture capital side, the primary product for most banks in this space is called the capital call line of credit. These are short-term loans to venture capital and private equity companies that are trying to execute quickly on investments they are making in start-ups or businesses. At Silicon Valley Bank (NASDAQ: SIVB), the bank that really pioneered tech banking, I know capital call lines can carry an interest rate that tracks the prime rate minus a quarter of a percentage point. In today's climate, that would be an interest rate around 3%.
Source Fool.com
