JPMorgan’s Publicly Traded Clients Give Back the Most PPP Loans

(Bloomberg) -- Nearly one-third of the virus-relief loans that public companies now say they’re returning to the government were arranged by JPMorgan Chase & Co.

The nation’s largest bank attracted criticism after the U.S. government began channeling hundreds of billions of dollars through lenders to help pandemic-struck small businesses pay their employees. Even as many mom-and-pop outfits complained that they couldn’t get access to the forgivable loans, JPMorgan disclosed that it had secured them for most of its larger clients that wanted them.

The small-business uproar helps explain why so many of the givebacks are now flowing through JPMorgan. Although the bank is among thousands of lenders processing the relief applications, its customers account for 13 of the roughly 40 companies that have told the Securities and Exchange Commission that they’re backing out of the loan deals, according to data compiled by FactSquared as of Thursday.

Those include restaurant operators Ruth’s Hospitality Group Inc., Potbelly Corp. and Shake Shack Inc. which sought $10 million or more apiece.

A JPMorgan spokeswoman, Nicole Robbat, said the bank worked quickly to distribute federal relief funds and informed its clients when the government clarified who could tap the funds.

“As the government’s guidance evolved and eligibility requirements appropriately tightened, certain clients were no longer eligible or pursued other funding arrangements,” she said in a written statement.

In all, more than 370 public companies have said they tapped so-called Payroll Protection Program loans, to the tune of about $1 billion so far. That’s a sliver of the $669 billion that the federal government is distributing in the PPP facility, most of which is going to private companies that aren’t bound by public disclosure rules.

More givebacks could emerge, as companies scrutinize the updated federal guidelines ahead of a May 14 deadline to return the money.

Small Customers

When the Small Business Administration started taking applications for the PPP loans on April 3, JPMorgan quickly emerged as the top lender, with $14 billion extended to its clients in the first round of funding that ended in mid-April.

Not all of its customers fared equally. On April 22, it disclosed that most of its commercial banking clients that wanted the loans had received them, compared with 6% of the smaller customers of its business banking unit.

JPMorgan and several other big U.S. banks were sued by small businesses that accused them of favoring their biggest clients over smaller organizations. It didn’t comment at the time.

On April 23, in response to the public outcry about entities such Shake Shack and the Los Angeles Lakers getting loans, the U.S. Treasury clarified that public companies “with substantial market value and access to capital markets” were unlikely to qualify. It followed up with a warning that the SBA will review all loans of more than $2 million before they are forgiven.

The loans being returned by JPMorgan clients were arranged before the Treasury offered its new guidance. In the second round of SBA loans, which went out last week, JPMorgan and other lenders said they were prioritizing smaller clients.

“Following the direction of the CARES Act and guidance provided by the government, our bankers worked around the clock to deploy this relief as quickly as possible under an unprecedented timeline,” Robbat, the JPMorgan spokeswoman, wrote. “We’ve always believed that funding should go to those that need it most as allowed by the government’s eligibility criteria. As the new guidelines are released, we’ve been sharing them with our clients.”

Hotel Trusts

Other JPMorgan customers that have disclosed they are returning the loans are U.S. Auto Parts Network Inc., Wave Life Sciences Ltd. and Fiesta Restaurant Group Inc.

Bank of America Corp. has extended about $25 billion in paycheck protection loans. Among them were 25 loans that have been disclosed by public companies. One of those is being returned, according to FactSquared.

KeyCorp’s KeyBank made 15 SBA loans to customers that disclosed them publicly. Seven of those are being returned. Six of the loans are associated with hotel trusts controlled by a Texas businessman, Monty Bennett, that together tapped $126 million.

Silicon Valley Bank processed 30 SBA loans to public companies, five of which are being returned, according to FactSquared data.

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