JPMorgan Chase Expanding in Florida

Last Updated Jan 29, 2010 3:16 PM EST

JPMorgan Chase (JPM) is digging into the belly of the real estate beast -- Florida. CEO Jamie Dimon said recently the financial company plans to open new branches in the sunshine state.

The housing bust in Florida took down 13 banks in the state last year. The biggest failure was $12.8 billion-asset BankUnited of Coral Gables. And the carnage continues. The FDIC last week seized Miami community bank Premier American, while Boca Raton's Sun American Bank (SAMB) looks set to go under. Florida banking regulators estimate that more than one in three of the state's roughly 330 chartered institutions are in danger (click on chart to expand).

Yet there are good reasons why JPM wants to expand in Florida. Most important, it's a key market, especially as a pipeline into affluent South Florida. Beyond retail business, the region offers enormous wealth management opportunities, drawing capital from wealthy domestic and foreign customers.

JPM also has a far smaller presence in the state than major competitors Bank of America (BAC) and Wells Fargo (WFC). As of mid-2009, JPM had 242 branches in Florida, compared with 661 for B of A and 724 for Wells Fargo.

"For banking, the best states in the nation to be in are Texas, California and Florida," said independent banking consultant and economist Ken Thomas in an interview, noting that JPM already has sizable footprints in Texas and California. "Those three states have 23 percent of the nation's deposits, and they have all the growth. So this is where you want to be."

Other players also are targeting Florida. Canada's TD Bank (TSX: TD) last year opened a regional headquarters in Coral Gables and announced plans to open 200 new branches in Florida. Spanish giant Banco Sabadell this month completed its acquisition of Miami's Mellon United. Meanwhile, BankUnited is back in business under well-heeled new ownership.

The local banking industry's troubles in Florida also point more to the super-heated development in the state over the last decade than to any fundamental economic weakness. More than 100 banks sprang up in Florida since 2000. Most of these institutions were small, and their prospects were tied directly to the real estate market -- when it tanked, so did they.

Yet Florida retains some significant advantages that should help its economy recovery. These include its large tourism industry, lower-cost labor pool and proximity to thriving markets in Latin America.

In discussing JPM's Florida play, Dimon only mentioned opening new branches and adding staff. But here's betting the company is scouting for choice acquisitions in the state. Companies such as struggling BankAtlantic (BBX), or even BankUnited if its investors are looking for a quick flip, could accelerate JPM's expansion in Florida much faster than organic growth.

"BankUnited buy would fit in perfectly, giving [JPM] 61 more offices," Thomas added by email. "They may be making a mistake by ignoring failed banks in Florida, as this is often the best and cheapest way to pick up a franchise if it has good locations."

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