JPMorgan acquires First Republic Bank’s assets

(Reuters) – JPMorgan Chase & Co, the biggest U.S. bank by assets, said on Monday it will buy most of First Republic Bank’s assets after U.S. regulators seized the troubled bank.

First Republic’s market value plummeted 75% in just a week due to a wave of panic. As the future became murkier, First Republic’s collapse marked the third major U.S. bank failure in less than two month.

What analysts have to say about the bailout deal

Michael Mayo, Equity Analyst, WELLS Fargo Securities (research note with excerpts).

“JPM’s deal w/failed FRC is financially accretive (est. Low single digits), strategic consistency (US wealth growth), and system-friendly – FDIC losses of only $13B.

“First, like the GFC (Global Financial Crisis), this again shows the importance of having a fortress-like balance sheet. Second, this fits with JPM’s strategy to hire more FAs (financial advisors), penetrate more wealth solutions with existing consumers, and use more distribution to do so. Third,

“The CEO letter stresses the fact that losing trust in banking for some is bad news for everyone and helps restore trust within the industry.”

MACRAE SKYES, PORTFOLIO MANAGEMENT GABELLI FUNDS

“Nice resolution. FRC will have a strong partner in JPM who benefits from JPM’s accretion dynamics, and the scale that they gain in wealth-management (a growth area targeted by them). The fact that there are multiple bidders indicates the industry may be able to deal with future issues arising from increased duration risk on balance sheets.

“I don’t believe this is similar to 2008 since that was a much more macro-leveraged situation around credit. Since 2001, there have averaged 26 bank failures per year.

JAMEEL AHMAD, CHIEF ANALYST FOR COMPAREBROKER.IO

Investors can expect that the financial markets will remain defensive.

As traders search for assets of safety, they will look at the U.S. Dollar and Japanese Yen. Gold prices, in particular, have been gradually rising throughout 2023. This could be seen as an opportunity to fuel a rally which has lost steam in recent weeks.

As controversial as bitcoin will be, the price reaction is also worth watching in the event this confidence crisis drives traders to seek out an unconventional asset.”

“This will not likely prevent the Fed to raise U.S. Interest Rates this week as widely expected.” Investors will be interested to know what the U.S Federal Reserve, and specifically Chair Jerome Powell think about the obvious stresses in the banking sector.

BARCLAYS

We believe that the acquisition of JPMorgan Chase is modestly accretive for EPS and tangible books value, has a manageable risk, and can add to its wealth management business.

“This is the second biggest failure ever recorded. Even so, unlike Silicon Valley Banks and Signature Banks, the FDIC was ready to buy. The FDIC stated that the bidding process was highly competitive.”

“Additionally, the FDIC estimates the cost to FRC’s Deposit Insurance Fund (DIF), which will be around $13 billion. It appears that the cost to the Deposit Insurance Fund (DIF) of FRC will be about $13 billion.

R. SCOTT SIEFERS, MANAGING DIRECTOR, AND FRANK WILLIAMS, A RESEARCH ANALYST, AT PIPER SANDER

The deal has modest financial benefits but we see it as more important for its reputational benefits as it solidifies JPM’s position as an industry leader during times of crisis.

JPM is now an industry leader, having survived two crises. (JPM bought Bear Stearns during the Financial Crisis and Washington Mutual this time). It was already the first choice for customers who were nervous about their deposits, but now the company is taking out a problematic institution and easing customer concerns.

“Our only concern is what we don’t know. JPM, which was already a significant player, has become even more important at a time where ‘too large to fail’ is still a concern. It’s hard to imagine what could be said about a bank so strong that it was the most well-positioned in the country for dealing with crisis. But we wouldn’t be surprised if there were some unfortunate consequences at some point.

THOMAS HAYES, CHAIRMAN AND MANAGING MEMBER AT GREAT HILL CAPITAL

When it was only SVB, it’s easy to blame the management. Now that we can see the pattern, it’s clear that the Fed is moving too fast, and breaking things.

“While the FOMC has been more conservative with their guidance, and will respect the message sent by the market due to the weekend’s developments,”

“We wouldn’t be surprised to see the Fed take a pause after this last hike.” The markets should accept the news of today knowing that repeated bank failures will have the Fed on their heels and defanged going forward.”

(Reporting from Manya Saini in Bengaluru, Siddarth S and Reshma rockie George; Compiled by Niket Nishant; Edited Shounak Dasgupta).