While the U.S. housing
is continuing its slow recovery in the wake of the subprime
crisis, one of the nation's largest banks is betting billions of
dollars that homeowners will not renege on their payments.
Instead of American homeowners, however, JPMorgan Chase & Co. (
) has significantly increased its holdings of
outside of the U.S. The biggest U.S. bank by assets, JPMorgan has
now amassed approximately $72 billion in mortgage securities that
do not carry U.S. government guarantees.
JPMorgan, one of the first banks to rid subprime holdings from its
books at the onset of the economic crisis, has quickly - and
quietly - increased its
in foreign-based mortgage securities. In 2009, the financial
institution held only $19 billion of such securities, a figure that
jumped to nearly $53 billion by the end of 2010.
While the sovereign
crisis that has plagued the euro zone for the past few years
continues to erode investor confidence, JPMorgan's bet underscores
how the company is taking a calculated
as it endeavors to bolster
amid market volatility. Morningstar Inc. analyst Jim Leonard told
Bloomberg the move could pay off for the financial giant.
"The bet is they can get a little more
in areas where they think that they're safe," Leonard told the news
provider. What's more, he downplayed the notion that although
are now notoriously associated with the financial meltdown they are
inherently a poor investment, characterizing such an argument as "a
JPMorgan's increased investment into foreign mortgage bonds may
seem surprising, but other banks are taking even riskier bets in
the subprime market. A number of large U.S. banks and hedge funds
contend that prices have fallen so precipitously since 2007 that it
is unlikely the lackluster domestic housing market will weigh them
resurgent subprime market
is alarming some investors and government officials, but prices are
edging upward, indicating demand has grown for the financial tool.
According to data from Barclays
, prices for a specific type of mortgage
tied to adjustable rate mortgages climbed from 49 cents on the
dollar in November to 55 cents in February.
Nevertheless, debt prices have climbed in the past - reaching 65
cents on the dollar in February 2011 - and subsequently dropped
following a Federal Reserve Bank of New York Auction, according to
BusinessWeek. Analysts contend banks are cautiously moving forward
with such purchases, but with the global
's specter lingering and the threat of an economic slowdown in
Europe weighing heavily on investor sentiment, policymakers are
casting a critical eye.