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Brief #36—Economics

By Samuel C. O’Brient

Policy Summary
Private prisons have existed in the U.S. for years but under Trump, the stocks of two publicly traded companies, CoreCivic (NYSE: CXW) and GEO Group (NYSE: GEO) that make up the industry have surged. It isn’t hard to see why. The Trump Administration’s  mass incarceration of immigrants and migrants has created the need for more prisons and immigration detainment centers,  leading to the award of lucrative government contracts  to the two companies that build prisons for a profit. It was estimated last year by S&P Global Ratings that of all immigrants currently detained by U.S. Immigration and Customs Enforcement, roughly two thirds are held in private detention facilities.

The private prison market braced for turbulence on March 5th when JP Morgan Chase, the world’s largest bank by assets, publicly announced that they would cease all financing of companies that operate within the private prison and detention center industry. The news raised plenty of eyebrows for people with ties to the private prison industry and for good reason. Despite the government contracts they receive, private prison corporations depend on Wall Street banks to finance their overall operations.  Private prisons represent a small fraction of the bank’s overall dealings, but the past year saw the two aforementioned companies borrow roughly $1.8 billion from several banks, including JP Morgan Chase, Wells Fargo, and Bank of America

Both CoreCivic and GEO Group are considered Real Estate Investment Trusts by the Internal Revenue Service. While this means comes with significant tax breaks, it also means that they are required to pass off the majority of their income derived from real estate to shareholders.

Analysis
How much trouble does JP Morgan’s decision mean for the private prison industry? As of now, it’s difficult to say but there can be little doubt that this new development will certainly shake things up.

While there are plenty of other banks who’ve made a habit of bankrolling private prisons, including Bank of America and SunTrust Banks, it seems likely that JP Morgan’s decision may spark a chain reaction. In January, when Wells Fargo released their Business Standards Report, they indicated that they planned on scaling back their involvement with the private prison industry for reasons involving “environmental and social risk management.” For a bank as embroiled in scandal as Wells Fargo, following JP Morgan Chase’s example might prove a worthwhile maneuver.

Aside from being an effective public relations strategy, divesting from the private prison industry seems to be well received by bank shareholders. Investors, both individual and institutional, have long been doing their part to strike back at the private prison industry by making sure that none of their capital goes towards funds with any ties to the industry. A significant involvement with the private prison industry could easily alienate investors with a focus on social responsibility, a growing trend through the financial sector. Organizations such as Real Money Moves have been created for the sole purpose of keeping money out of the hands of private prison companies, as have campaigns such as Corporate Backers of Hate and the National Prison Divestment Campaign launched by the  NNIRR (National Network for Immigrant and Refugee Rights. JP Morgan Chase’s decision came after protestors confronted CEO Jamie Dimon at the company’s shareholder meeting and later rallied outside his Manhattan apartment. The driving forces behind these events included the Backers of Hate Campaign and the immigrant rights organization #FamiliesBelongTogether.

A recent report from Javier H. Valdés of Make the Road New York and Ana María Archila of the Center for Popular Democracy stated that the campaign will now shift its focus to banks such as Wells Fargo and Bank of America. Given everything we’ve recently seen from JP Morgan Chase, it seems entirely possible that other banks could follow suit. Targeting the private sector sources that private prison rely on has the potential to have dire consequences for the industry.

The months to come will be quite telling as to the fate and strength of the private prison industry. Many eyes will likely be turned toward Wells Fargo, a bank that would certainly be well served by an announcement that would please both shareholders and human rights activists.

Photo by Fabian Blank

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