Photo: Warrior Trading News
The stock prices of the two largest U.S. private prison corporations, GEO Group and CoreCivic, tumbled last week as JPMorgan Chase and Wells Fargo, the first and fourth biggest U.S. banks, announced their decisions to stop financing private prisons. These decisions come amidst mounting pressure on financial institutions, from a range of organizations and campaigns, to stop financing an industry that profits off of mass incarceration and the detention and separation of immigrant families.
The drop in private prison stocks was noted last Thursday by Daniel Altschuler of Make the Road New York:
Writing at the close of the U.S. stock market a day later, Forbes contributor Morgan Simon noted that “the stocks of private prison leaders GEO Group and CoreCivic are down 16% and 8% respectively today since last Tuesday,” when JPMorgan Chase announced it would stop financing private prisons.
Moody’s Investment Services, an influential bond credit rating company, issued a comment that said JPMorgan Chase’s decision represents a “credit negative for the private prison real estate investment trusts” that “signals future uncertainty regarding access to capital within the private prison industry.” Moody’s comment went into further detail:
JPMorgan’s announcement builds on the trend of negative publicity and uncertainty prevalent in the sector, as lenders and investors look to disassociate themselves from companies that directly profit from the detention of prisoners. With companies increasingly focused on social risk management, JPMorgan’s announcement could have a considerable effect on both CoreCivic and GEO Group by adversely affecting their business reputations, brand strength and employee relations. Furthermore, and as has occurred in the past, the public pressure inherent in the industry could lead additional lenders and/or banks to follow JPMorgan’s lead, ultimately limiting their exposure to the private prison sector.
One striking thing about Moody’s comment is its implicit acknowledgment of the the role of activist pressure in shaping JPMorgan’s decision. The “trend of negative publicity” that is leading lenders and investors to “disassociate themselves from companies that directly profit from the detention of prisoners” is the result of extensive protest from below from a range of groups, coalitions, and campaigns, including the #FamiliesBelongTogether coalition, #BackersOfHate campaign, Freedom to Thrive (Enlace), and many others. (Altschuler and Simon work with the #FamiliesBelongTogether coalition, and LittleSis has worked closely with the coalition as a research partner.)
Moody’s also noted that the business model of CoreCivic and GEO Group depends heavily on ready access to cash, which means the decision by the two powerhouse banks to end their financial arrangements could hit the two incarceration profiteers especially hard:
Additionally, JPMorgan’s move could reduce the private prison industry’s access to the capital markets. Maintaining ongoing access to various sources of external capital is vital for all commercial real estate firms to support their businesses. This is particularly true for REITs because their operations are highly capital-intensive and certain tax rules limit their ability to retain cash. With REITs required to distribute most of their cash flow, their ability to repay debt largely relies on the ability to raise cash. REITs with a proven track record of raising funds from lenders such as JPMorgan maintain greater financial flexibility and credit quality. As a result of the reduced financing available to prison REITs following JPMorgan’s announcement, we expect the future growth and liquidity of both CoreCivic and GEO Group to be more muted as it relates to operating results, revenue and earnings trends.
The New York Times story on JPMorgan’s decision noted that banks had raised around $1.8 billion in debt across three deals for CoreCivic and GEO Group in 2018. Before its decision last week, JP Morgan Chase had provided the private prison industry with at least $254 million. As we wrote last year, Wells Fargo has been “a major creditor, bond underwriter, debt trustee, and investor in private prisons” with tens millions invested in GEO Group and CoreCivic. Wells Fargo CEO Tim Sloan said the bank would “exit” its relationship with the private prison industry when pressed by Rep. Alexandria Ocasio-Cortez in congressional testimony last week. In addition to JPMorgan and Wells Fargo, U.S. Bank also stated on March 10 that “it reduced its credit exposure to GEO Group and CoreCivic to ‘an immaterial amount.’”
The role of banks and investors in propping up destructive industries and practices goes well behind private prisons. From the Puerto Rico debt crisis to new fossil fuel infrastructure and beyond, the credit agreements and financial services that big banks provide are crucial to upholding destructive industries and practices across the world. But the recent decisions by the likes of JPMorgan Chase and Wells Fargo show that consumer-facing banks that care about their public image can be pressured to stop propping up things like the private prison industry.