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Securities Based Lending

Sometimes liquidity needs arise, whether they’re planned or unexpected. With a securities-backed line of credit in place, you’ll have ready access to capital without having to liquidate your investments. You can use your marketable securities, such as stocks, bonds and mutual funds, as collateral. And of course, we’ll consider how it all fits into your overall wealth plan—balancing your short-term needs with long-term goals to create the right approach for you.

What is securities-based lending?

A securities-based line of credit can be a flexible and cost-effective way to access liquidity strategically. Whether you are looking to fund a new purchase, renovate your home or take advantage of a timely investment opportunity. Using a line of credit allows you to remain invested and keep your investment portfolio intact.

Other common uses include:

 

  • Real estate purchase
  • Expenses such as taxes
  • Specialty assets such as yacht, art, or stadium finances

 

Benefits that can make a securities-based line of credit a valuable complement to your investment portfolio:

  • Stay invested. Keep your investment plan and asset allocation in place without disrupting your long-term strategy
  • Financial flexibility. Quickly access liquidity for a range of uses—whether you’re meeting large financial obligations or seizing an opportunity
  • Cost-effective. There are no setup fees, and only the funds you use incur interest charges, which are often lower than other financing options.
  • Potentially tax-efficient. A securities-based line of credit can potentially be structured in a tax-efficient way, which may allow you to more effectively grow and preserve your wealth.

As with all investment decisions, it’s important to understand the risks of borrowing before moving forward. Events beyond your control, like market fluctuations that may reduce the value of your pledged securities, could lead to a margin call. We’re here to help you make the best decisions for your needs. Today and in the future.
 

How does it work?

As a client, you have the ability to borrow the sum total of the Lending Value of the securities in your account. A Lending Value is a percentage of each security’s market value and represents how much J.P. Morgan is willing to lend against the asset. Lending Values are subject to change without notice.

There are two types of Lending Value:

  • Initial Lending Value (ILV) is the maximum amount that could be borrowed against your portfolio. ILV determines how much you can draw from your line, and whether collateral can be released or substituted.
  • When there is no release or substitution of collateral, Maintenance Lending Value (MLV) determines how much equity you are required to hold in your portfolio. Therefore, market depreciation may not cause an immediate margin call. A security’s MLV is typically higher than its ILV. MLVs are set at J.P. Morgan’s discretion up to regulatory thresholds.

Borrowing vs. Liquidating Portfolio Holdings: Which Strategy Should You Consider?

Both examples posit a $10,000,000 portfolio and a $3,000,000 debt. In the first example, Client A sells $3,000,000 worth of securities. The remaining $7,000,000 portfolio earns $483,000 during the timeframe under consideration. In the second column, Client B uses a line of credit to pay the $3,000,000. His $10,000,000 portfolio remains untouched and returns $690,000 over the same timeframe. Though interest on the loan comes to $58,000, Client B still nets $631,500—which is $148,500 (31%) more than Client A received.

Ready to invest in services? Find the right strategy with a J.P. Morgan advisor today.

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Important Information

Key Risks

This material is for information purposes only, and may inform you of certain products and services offered by private banking businesses of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

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Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account.

Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward looking views in order to meet the portfolio's investment objective.

As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

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In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPM. Products not available in all states.

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