JP Morgan’s $1.5tn SRI targets Europe’s security supply chain

Daniel Rudnicki Schlumberger, a 30-year JP Morgan veteran, sits down with senior leveraged finance reporter Nicolle Liu to unpack how the bank is exporting its Security and Resiliency Initiative (SRI) from the US to EMEA — mobilizing private capital for the sectors governments now treat as strategic.

Schlumberger also discusses:

• The $1.5trn, 10-year target and the full capital stack behind it: balance-sheet lending, syndicated loans, high yield, equity private placements, IPOs, venture and direct lending, second lien, PIK and hybrid capital;
• Where the money is going: aerospace and defense, nuclear, wind, solar, grid resiliency, AI, quantum, cyber, rare minerals, shipbuilding, robotics and critical medicines;
• Deals in focus: Oxford Quantum Circuits' equity private placement, Czechoslovak Group's HY bond and defense IPO, and CoreWeave's debut euro bond;
• Plus: private equity's push into defense consolidation, the sovereign data center question, government engagement, and how JP Morgan is staffing up its SRI team.

Have any feedback for us? Send us a note at [e-mail]. Thanks for listening!

Creators and Guests

Producer

Chase Collum

Head of Podcasts for 9fin Limited

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Nicolle Liu
Welcome to the Cloud 9fin Podcast. I'm Nicolle Liu, Senior Leveraged Finance Reporter at 9fin. Today, we're here to talk about JP Morgan's Security and Resilience Initiative in Europe. And we have Daniel with us. Daniel, thank you for joining us. Do you mind introducing yourself to our audience?
Daniel Rudniki Schlumberger
Nicolle, thank you very much for having me. I've been at JPMorgan for close to 30 years, recently running the leveraged finance team for the past seven years. And now I'm focusing on growing our Security and Resiliency Initiative for EMEA. So what's that, right?
Something that we started last autumn in the US, very conscious that our nations are going through more and more dangerous geopolitical times. That we're relying too much on a long supply chain with unreliable partners. We think that these issues are fairly major and expose our countries to real risk. We think that it's not just the government's problem, not just the Army's problem. It has to be an all of society effort. And the Security and Resiliency Initiative is our way to do our bit as the largest Western bank.
Nicolle Liu
That's cool. That's really cool. The headline number is really striking. It's $1.5tn over 10 years and is a very, very large figure. How should the market participants interpret that number? How does it break down? Growth lending, capital markets, advisory, private capital and equity, or any other products that you're thinking about?
Daniel Rudniki Schlumberger
So we want to make a difference. And we Western nations are going to need to make a significant investment if we want to make a difference. So how did we get to that number? One and a half trillion is the amount we want to lend from our balance sheet, but also raise in the capital market that can be through equity POs, equity private placement or debt, syndicated loans or other debt sources for companies that are in a number of specific sectors. We'll come back to that.
How did we get to that number, $1tn? We looked at it, not this is about making a real difference. We looked at our employment and put that business as usual would be doing a trillion of lending, capital raising, et cetera, over a 10 year period. And therefore we set ourselves this $1.5tn objective, 50% more. If we do 50% more, we would have stretched ourselves. We wouldn't have had an impact.
Nicolle Liu
What do you mean by stretching yourselves? Like, is it lending more in higher leverage or what do you mean by that?
Daniel Rudniki Schlumberger
So it means a number of things. It means leaning in, lending more. It means stretching ourselves to apply the smartest possible solution to find ... Okay, Let's be very practical. So maybe before I go into the details of the deals, I want to tell you a little bit about the sectors we're targeting because that will give you a better sense of what we're trying to do. So we have five big sectors we're focusing on.
Aerospace and defense. That's number one. That's the most obvious one.
But we also have energy. I think energy is Europe's biggest challenge. When you think about Europe's dependency on imported fossil fuel that exports 60% of Europe's primary energy, and importing fossil fuel. That is creating a major geopolitical risk. So helping grow new means of electricity production, nuclear, wind, solar, strengthening grid resiliency is extremely important. We've seen it in Ukraine. The war on means of energy production is almost as strategic as the military war.
The third sector is technology with things like AI, quantum computing, cyber security.
The fourth segment is advanced manufacturing. We have in this category rare minerals. We know our dependence, our countries are on imported rare minerals. And it's not just about mining, by the way, it's also about processing. Without rare minerals, industry stops. It's shipbuilding. It's critical infrastructure. Robotics.
And finally, the last vertical is healthcare. How do we get the manufacturing of critical drugs and medicine back in our countries?
Nicolle Liu
That's a pretty broad range of sectors. How do you define a specific transaction as an SRI transaction? Is it mainly the sector or the use of proceeds or yeah?
Daniel Rudniki Schlumberger
So it's the intersection of sector, those are described. And then countries, for now we've decided to focus on US, Canada, and in Europe, it's EU countries and NATO countries in Europe.
Now, for this, going back to your question, how does it apply in practice? So we have a lot of very practical use cases and need cases. A lot of companies need capital. For example, take energy. To build new wind farms, solar farms, nuclear plants, to build the new electricity interconnection. That seems mundane, but it is incredibly important and Europe is very much lacking in grid interconnection. For example, it takes years to connect a new production capacity, renewable production capacity with the UK. So you're talking about a lot of project financing, a lot of infrastructure financing needs there.
Or you can look at mid-sized companies, Mid-sized companies in the aerospace and defense sector. A lot of these mid-sized companies now are facing the need to increase materially production levels. Something they may never have done. And a lot of that may have to be done before the orders are even put in. Right? So you need to build the plant now so that you get the orders tomorrow, so that in two years, you get the receivables. There's a timing gap. It's an old fashioned finance problem we need to solve. And what we're trying to do here is be the catalyst and bring all the products that we've got to bear in order to solve these practical issues for these companies, for these clients.
Nicolle Liu
That's super interesting. Just going back a little bit, I want to get into why this initiative is being expanded across Europe right now. What has changed in the geopolitical, industrial, financing environment that you think like, oh, this is the right moment? This is what we want to do. We want to make things big right now.
Daniel Rudniki Schlumberger
So we launched this in October in the US and then decided to expand it to Europe. Right after Easter, a few months later. We were surprised by how much demand and how much this initiative resonated with our European clients and European governments. Governments are very much happy to help. For example, we had a really nice announcement a few weeks before that it raised the largest equity private placement for Oxford Quantum Circuits, OQC. Great British company, largest quantum computing equity raise ever done in Europe. Jamie Dimon and Rachel Reeves were there. We spoke with a lot of innovative British companies. Where governments are usually keen to encourage that because it provides growth and jobs.
Also very much innovative companies. We've not spoken about that, but that's another very important angle. When you think about all the problems we've discussed, the solutions are probably not going to come from the old recipes. We're not going to solve the problems by doing what we've already done. And the role of innovative companies taking new approaches. For example, in defense producing high volume, low cost, moving from long lead time, low volume, high cost, exquisitely manufactured products to low cost, large scale mass produced is probably going to be done more easily by newcomers.
Nicolle Liu
That's a very interesting point. Speaking of newcomers. You refer to going into more products like venture financing?
Daniel Rudniki Schlumberger
Yes. So for us, SRI or Security and Resiliency Initiative is not one product. It's about taking all of the bank's products. So venture lending, club lending, syndicated lending, institutional term loans, direct lending, second lien, peak loan, high yield bond, equity, private placement, hybrid capital, IPOs, right? And applying the full set of products that we have to offer in order to solve those issues. We, Western countries, are late. We have significant issues to solve. But we have a superpower, right? When in our countries, where the entrepreneurs, inventors, work with smart capital, work with governments together, you can do things extraordinarily fast and extraordinarily efficiently. That's what SRI is about. It's putting together and trying to be the catalyst to get industrialists, entrepreneurs, governments, and our financial community to work together for these programs.
Nicolle Liu
You mentioned governments quite a few times. Obviously, they're very central to this. They set procurement budgets. Approve, expose, sometimes co-invest, all those sorts of things. I just wonder how closely does JP Morgan engage with governments as part of SRI? You mentioned a bit about the UK as an example. But quite often governments like to work with their local home banks. And JP Morgan, obviously, is an American bank and they might have other thoughts behind this. I'm just wondering, how do you build that relationship? How do you nurture the relationship and be there to support the whole initiative?
Daniel Rudniki Schlumberger
Look, yes, JP Morgan is a US-based bank. We were founded in London, actually. We were founded in London to help the US industrialize, which seems to have been rather successful. But we're also a very, very, very large European bank. We have more than 30,000 people in EMEA. We're in more than 20 countries. We've been in all these capitals for more than 150 years. Our European business is extraordinarily important to JP Morgan and to the European economy. And in the moment where we are in political life, also in complicated moments for a number of countries in terms of trying to materially increased investment levels, and at the same time with limited fiscal leeway. We see governments understanding how the private sector can work. And practically, we work with the government. All the time we work with national governments, we work with local governments. And sometimes you do need the help of the government and all parties to come together to find solutions. A good example of an issue where government's help will be crucial is critical minerals.
Nicolle Liu
So let's move from the framework into some actual deal flow. What are you seeing? So it's already translated into real financing activities in EMEA. What are the most active areas that you're seeing deals happening?
Daniel Rudniki Schlumberger
So let's take it back to my three buckets. The first one, I'm going to say from small to large, where smaller innovative companies, right? Venture capital backed companies need substantial capital. We're talking about industrial tech, defense tech, space tech, energy tech. There's been a real shift in the appetite for the sectors from the venture capital community.
You probably have a second bucket which are I'd say more, industrial. Czechoslovak Group. It's great case study. So we tried to get them to do a high yield bond two years ago. That was hard. A lot of investors were hobbled by their own ESG relations. And we finally managed last summer to do a high yield bond for them, which was a resounding success. And now earlier this year, we were the lead bank for the IPO for the business. It was the largest defence IPO ever and quite a case study.
So this mid-market segment needs consolidation. There are lots of small companies, small operators, family-owned, that do very well one thing, but that are not equipped to scale.
And then the third bucket, I would take much larger projects that are going to be project finance, infrastructure finance. They may veer to be investment grade. Large energy projects. Also data centers, Sovereign data centers, right? If you want to have a modern security apparatus, you need your own sovereign data center and sovereign AI solution, Ring fenced. So that's a lot of investment in Europe. Europe needs to catch up. We've started, we've done the first CoreWeave euro bond which was quite extraordinary. But we're just at the beginning of data centers and AI privacy in Europe. There's a wave coming and we hope to be able to help.
Nicolle Liu
I'd like to know more a little bit about, so you have been talking to private equity sponsors and how much are they interested in consolidating defense companies? Because we haven't seen a lot of like PE-backed defense related companies in the market yet. And when we speak to them as well, they also mention that it's a little hard to do projections because a lot of times it's ramping up production and a little hard to do valuations kind of things like so what's your experience in these discussions.
Daniel Rudniki Schlumberger
So private equity has been a little bit behind it is starting to change we're starting to hear more and more private equity funds raising dedicated vehicles. So I think we're going to start to see more transactions. There is a real problem of scale. A lot of the businesses are yet small and mid-sized. There are not that many sizable businesses. To be both, there's almost no secondary buyout seed in that state. That's why I'm talking about build-ups.
Nicolle Liu
The other question is for companies that need to build factories or expand productions before they have long-term orders fully contracted, what kind of financing structures can realistically bridge the gap? I would just have a little idea of an example of how could it work out under the whole framework?
Daniel Rudniki Schlumberger
It is the single hardest and most important issue we're facing. And there's no one-size-fits-all answer. You've got hybrid capital, long-term PIK loans. You have to work with what you get. It's very much a case-by-case world and we are trying to find company-by-company the solutions that will allow them to build the capacity they need.
Let me just give an example. Earlier this year we just signed a $180mn PIK loan with an Italian company which is making aerospace components. A classic company. They had to double in size in the next, I would say, three, four years. But they were quite, quite small, too small to issue a big loan or high yield, and they wanted to remain family-owned. They didn't want to dilute themselves, so they decided to take a PIK loan from us that would allow them to build a factory, invest in the working capital, hire the workers ahead of ramping up production.
Nicolle Liu
Well, sure. That's a really good example. The other thing is, in the press release, JPM said it's investing significantly in talent. So I just want to know a little bit more about how the build out will look in practice. What kinds of profiles are you bringing in? How does the team differ from a traditional investment banking coverage group?
Daniel Rudniki Schlumberger
We are trying to build the most user-friendly and holistic ecosystem for companies to grow. We have an external advisory council where we brought for example, Chris Cavoli, who used to head NATO in Europe. We're being joined by Tony Radakin, who is the chief of the armed forces in the UK, Bill Gates, Condoleezza Rice. We had also interesting people like Michael Dell or Jeff Bezos raised their hand and offered to join and help in our external advisory council. The chief of staff of the Pentagon.
We've created an SRI team. Think about it as an investment banking boutique, We've been nestled within the investment bank, with the very qualified people coming from classic investment banking. But also coming from consulting firms or from government to try to think about the issue in different ways. We're hiring industry bankers in relevant industry teams. We're hiring local bankers in our countries. So we're doing all that. We're going to create events together with the industry. And all that know-how, all that intelligence, combined with our $1.5tn capital commitments, with all that, we're trying to just create the most fertile ground for companies in that space.
Nicolle Liu
That's really exciting. Shall we kind of close in a more personal note of the conversation is like, what would you say for yourself that SRI is a success in maybe two or three years' time? What would you imagine it will be like? And you would say, oh yeah, I've done a really great job in this role?
Daniel Rudniki Schlumberger
Look, you cannot plan for the future, but you can make it possible. That's what we're trying to do. I think success would be to have built the right ecosystem, I found the right people, the right group of people who want to do a great investment banking job at a great bank, but also something a little bit bigger that matters for our nation and for the safety of our children. If we are finding smart ideas, if we're helping entrepreneurs, if we're helping companies, we're helping solve problems, then that's good.
Nicolle Liu
Thank you, Daniel. It's a really, really valuable conversation. Honestly, the point that strikes me the most is this isn't just about JP Morgan. It's also about mobilizing capital at a scale that matches the urgency of our generations and of the moment. Thank you so much for your time.
Daniel Rudniki Schlumberger
Thank you, Nicolle.