It's 2008 All Over Again, Con't

The 2023 version of the 2008 Big Bank Casino Bonanza is nowhere near over, as California regional bank First Republic has finally failed over the weekend, with the FDIC seizing the bank's remaining assets to sell to Jaime Dimon and JPMorgan Chase.

 

Federal regulators have seized First Republic Bank and sold it to JPMorgan Chase Bank in a deal aimed at quelling renewed weakness in the nation’s banking industry.

In a statement issued early Monday, the Federal Deposit Insurance Corp. said that all depositors of First Republic Bank will become depositors of JPMorgan and will have full access to their deposits.

The deal involved a “highly competitive bidding process,” the FDIC said in its statement, but it did not say what JPMorgan is paying to purchase First Republic.

Under the deal, JPMorgan acquires “substantially all” First Republic assets and agrees to assume responsibility for all of its deposits, including those above the federal insurance limit of $250,000 per account. First Republic had about $229.1 billion in assets and $103.9 billion in deposits.

JPMorgan personnel are now reaching out to First Republic customers, CEO Jamie Dimon said.

Federal regulators approached JPMorgan about bidding on First Republic’s assets, said Jeremy Barnum, JPMorgan’s chief financial officer. The bank “did not seek out this deal,” Barnum told reporters Monday.

Dimon reiterated that the broader banking system was sound and said the deal would stabilize the system after the country’s third bank failure in two months. Still, Dimon acknowledged that as interest rates continue to rise, the economy is not immune to consequences or stress.

“Hopefully people will be properly prepared for it,” Dimon said.

In March, JP Morgan was one of the banks that put billions of dollars into beleaguered First Republic, as regulators and the industry scrambled to contain a crisis that had led to the failures of Silicon Valley Bank and Signature Bank. Barnum said the ultimate demise of First Republic wasn’t a sign that that effort failed. Rather, it helped buy time “when time was needed.”

JP Morgan is not assuming First Republic’s corporate debt or preferred stock, it said in a statement.

First Republic’s failure is expected to cost the FDIC about $13 billion, the agency said. The money will come from the FDIC’s deposit insurance fund, which insured banks pay into every quarter.

First Republic’s 84 offices in eight states will reopen as branches of JPMorgan, and depositors will be able to access all of their money when they open Monday.

The closure and sale of First Republic comes seven weeks after the abrupt failure of Silicon Valley Bank in California prompted an extraordinary federal rescue effort aimed at averting a wider financial crisis.

Unlike SVB, which failed in a matter of days, First Republic has been wobbling for weeks. The delay gave regulators and industry executives time to evaluate the bank and prepare for its demise.

 

The difference between SVB's failure in March and First Republic this morning is that the big investors were given time to make an orderly exit and even profit from First Republic.

 

Everyone's acting like this is the end of the performance rather than the coda to the first movement of the symphony where the second biggest bank failure in US history just happened. 

If the Fed raises interest rates even more to slow down the inflation train, more of this will happen. And if the GOP causes a debt default on America's credit, all bets are off even in the Big Casino.

It's going to be a wild summer.