The PR War

By James Kwak

Every major bank other than Goldman Sachs must be ecstatically happy that Goldman exists, soaking up all the attention with its escapades in Greece and Italy. The other banks, by contrast, are trying to make themselves out to be white knights. See, for example, JPMorgan’s ad today in multiple major print newspapers describing its commitment to small business lending:

Like that picture of small-town America?

The main claim is in the second paragraph: a commitment to lend $10 billion to small businesses in 2010. These kinds of marketing claims are difficult to verify. But I gave it a shot.

“Small business” lending, in JPMorgan’s financial supplements (great web page, by the way), is almost certainly “Business banking origination volume,” on page 13 (PDF page 14) of the most recent supplement. To see how JPMorgan Chase defines its business lines, see page 3 (PDF page 8) of this Realigned Financial Supplement. “Middle Market Banking” is included in Commercial Banking. So the “Business banking” segment of Retail Financial Services is almost certainly small business lending.

What does $10 billion mean? First let’s look at the history, thanks to those helpful supplements.

That’s called falling off a cliff. In words, JPMorgan Chase’s small business lending fell by two-thirds from 2007 to 2009. Or, in slow motion:

Note that the economic recovery began in Q3 2009 — no thanks to JPMorgan, apparently.

Still, $10 billion is still an increase over the previous high of $6.9 billion in 2007, right? Well, not quite. Because in the meantime, JPMorgan Chase went and bought Washington Mutual. At the end of 2007, Washington Mutual held over $47 billion in commercial loans of one sort or another (from a custom FDIC SDI report that you can build here). Most of those are not small business by JPMorgan’s definition, since commercial real estate and multifamily real estate got put into the Commercial Banking business after the acquisition. But that still leaves $7.5 billion in potential small business loans, up from $5.1 billion at the end of 2006, which means WaMu did at least $2.4 billion of new lending in 2007.

I don’t know how much of this is small business lending, but this is part of the problem — banks can choose what they call small business lending, and they can choose to change the definitions from quarter to quarter. It’s not also clear (from the outside, at least) what counts as an origination. If I have a line of credit that expires and I want to roll it over, does that count as an origination? My guess is yes. Should it count as helping small businesses and the economy grow? No.

Finally, according to the ad itself, JPMorgan Chase has lent $800 million to small businesses in the first seven weeks of the year. At that rate, they’ll get to about $6 billion for the year. After the Washington Mutual acquisition. After the closure of close to two hundred smaller banks that were not considered too big to fail. That’s not something to run an ad about.

10 responses to “The PR War

  1. Yeah, that picture is almost too good to be true.

    The first thing I think when looking at it is: Wow, somebody really ought to knock down those buildings in the background.

  2. This must be written by their “mark to model” people.

  3. Didn’t a major auto maker use a similar if not identical slogan in 2006?

  4. Thank you so much for calling the TBTF banks on this claptrap. Bof/ML and AMEX are both trumpeting all they are “doing” for small business when in fact they likely are doing less than they have in the past and the media is letting them get away it.

    I’m sure the media wants to help not hurt confidence, but the plain facts are that big banks are not increasing lending (mostly for good reason as good borrowers are not borrowing more right now).

    Of course the media doesn’t want to alienate one of the last reliable sources of ad income (banks and FIRE in general), so they refuse to call anyone out on this.

    Sad that the media’s business model is so complicit in the TBTF economy. Imagine where we might be if they were able to use their megaphones for good instead of parroting the FIRE script.

  5. It’s another element of the Bailout Big Lie.

    The original lie, in a nutshell, was that America has to bail out the big banks, and most of that bailout wealth will trickle down back to Main Street.

    (Why Main Street’s wealth couldn’t just go directly back to Main Street without middlemen and toll booths is a question you just weren’t and aren’t supposed to ask.)

    Of course that didn’t happen, and it was never intended to happen. It was history’s worst robbery, $14 trillion down the rathole and counting.

    So now an ad like this simply makes the brazen claim that the wealth is trickling back down. What’s the matter, you can’t see it? Squint harder. Don’t worry, it’ll get to you.

    All we need you to do is keep sitting still quietly. We and your government have everything fixed up between us.

  6. “Small Business” has replaced the “Family Farm” as the totem used to justify enrichment of a very small minority of puppetmasters.

  7. To John. So right. The small business totem has about as much to do with Main Street lending as the family farm has to do with Cargill and Tyson. What a joke.

    And as to why we laundered taxpayer money through TBTF is beyond me. Should have seized Citi and lent the money directly to Main Street as any good National Bank would do in tough times.

  8. The definition of “small business” has had some substantial massaging by both the banks, and politicians over the years. Basically any business that’s too small to get an underwriter for it’s bonds so it borrows from a bank is a “small business.” It doesn’t matter if they employ 5,000 people, or a the largest employer in a congressional district and thus have the congressman wrapped around their finger, they’re a “small business.”

    Next time you hear that term bandied about just remembert that they are talking about the guy who owns 15 car dealerships worth over a Billion dollars, the regional furniture store with 50 locations across four or five states, the and the guy who owns 20 Burger King franchises. Now I’m not against any of them, they employ people, they have all the same economic worries as the rest of us, but the perception is that they’re talking about the landscaper with two trucks and three employees or the corner diner where the owner is the cook, his wife the hostess and his daughters and sons are the servers and bus the tables. That’s the picture they paint, but it’s not who they’re talking about.

  9. Call reports break-out C&I loans with starting balances of less than $1M, so we can look at what’s happening within the banking system at least. On a consolidated basis JPMorgan Chase showed just over $20B of these loans outstanding in Q2 of 2009 and increase of only $134M over their 2008 level.

  10. Oh Please.

    These morons just called me this AM about a delinquent account that I paid from Chase Bill Pay…again.

    This is just another loser bank with a fat wallet.