How JPMorgan turned a nightmare First Republic week into a dream scenario for shareholders

Good morning,

With less than six months left until 2023, there have been three failures of regional banks.

Silicon Valley Bank and Signature Bank in March, and on Monday, First Republic Bank was shut down by the California Financial Protection and Innovation Administration. Last week, I spoke with an analyst who pointed out that in addition to SVB Bank’s management causing trouble for First Republic, its decades-old business model of making large mortgages to wealthy borrowers, usually at low rates, ended up putting the bank in a vulnerable position. . Fed rate hikes last year.

Now, JPMorgan Chase – the largest bank in the US – has acquired First Republic, in a deal negotiated by regulators. JPMorgan will acquire the vast majority of First Republic’s assets, including $173 billion in loans, $30 billion in securities, and $92 billion in deposits. How did JPMorgan position itself for such an acquisition?

My colleague Sean Tully’s new report, “JPMorgan Clears the First Republic Wreck–Deals a $92 Billion Coup for Deal-Loving Investors,” provides insight. Congress passed a landmark law in 1994 that allowed US banks to consolidate across state lines with few restrictions, Tully explains. The total share of state deposits that any one entity could hold was limited to 10%, in addition to limiting the proportion within the state to 30%.

By 2014, the country’s three largest players, JPMorgan Chase, Bank of America, and Wells Fargo, had grown rapidly—in part through their bailouts of Washington Mutual, Merrill Lynch, and Wachovia in the Great Financial Crisis—to exceed 10%. Hence, the rule essentially barred the three giants from acquiring any competing lenders for a decade,” Tully wrote. The 1994 law, however, introduced a loophole that allowed exemptions of the 10% maximum for buyers who stepped up to bail out failed lenders that the FDIC was prepared to close.

JPMorgan took advantage of this loophole when the banking giant bought nearly all of the First Republic’s assets from the FDIC to “clean up the wreckage of the second largest banking failure in US history, surpassed in scale only by the collapse of WaMu in 2008,” Tully wrote. .

So what will JPMorgan shareholders gain? JPMorgan has achieved “what appears to be a coup for its shareholders, which has simultaneously stabilized the fragile outlook of regional banks,” he writes.

For starters, the deal has already given JPMorgan stock a boost. The bank was able to sell First Republic’s assets at an auction that included a number of competitors. “Despite the competitive nature of the purchase, CEO Jamie Dimon appears to have secured very favorable terms. Start with those $92 billion in deposits. They are far from the ‘hot money’ collected from tech net worth and ultra-high-net-worth individuals who have fled When the bad news started spreading.

He continues, “Many clients have turned off Millionaires at First Republic because it provided them with inexpensive ‘mega’ home loans, a practice Damon declared dead in the phone calls where he and CFO Jeremy Barnum explained the deal. You can read more about what it stands to gain for shareholders and how it was. JPMorgan is already leading the deposit wars here.

Sheryl Estrada

Big deal

Morgan Stanley’s E-Trade released data from its monthly sector rotation study. The top three sectors in March and April were materials, consumer discretionary goods (non-essential goods and services, such as automobiles and entertainment), and manufacturing. The results are based on a client’s default net percentage of buying/selling behavior for stocks comprising the S&P 500 sectors. All three sectors rose between March and April, with materials posting the largest increase from 1.1% to 10%, according to the report.

Courtesy of Morgan Stanley e-commerce

Go deeper

The World Economic Forum’s new report, “Putting Skills First: A Framework for Action,” delves into the “skills-first” perspective, a new approach to talent management that focuses on a person’s skills and competencies — rather than degrees, employment history, or job titles. Analysis of data from a geographically diverse group of 18 economies estimates that in all, more than 100 million people in these countries could be added to the global talent pool through a skills-first approach. The report also includes the Skills First framework.


Michael Dougherty He was named CFO at bioAffinity Technologies, Inc. (Nasdaq: BIAF; BIAFW), a biotechnology company. Dougherty is an experienced C-level executive with over 20 years in financial management and business strategy. Most recently, he served as CFO of Alexa Business Domains, Amazon’s Alexa AI and Voice division. Prior to that, Daugherty was CFO of TINT and CFO of Filestack. He was previously CFO of Amazon Pay. Earlier in his career, Dougherty held various financial positions with Russell Investments and Medisystems Corporation.

David Black Appointed CFO at Proterra Inc. (Nasdaq: PTRA), a commercial vehicle electrification technology company, as of May 16. Carina Padilla, the current Chief Financial Officer, will step down from her position, effective May 15. Non-executive employee until 2 June. Black has served as a special advisor to the CEO of BWX Technologies, a leading supplier of nuclear components and fuel to the US government. Prior to that, he was Senior Vice President and Chief Financial Officer of BWX Technologies. Black has also served as Vice President and Chief Accounting Officer and in other positions at Babcock & Wilcox.

he heard

“It’s hard to see how you can prevent bad actors from using them for bad things.”

—Geoffrey Hinton, a technology pioneer often referred to as the “Father of Artificial Intelligence,” told The New York Times On the prolific use of artificial intelligence after his company was bought by Google, he joined the tech giant in 2013. Hinton said later on Twitter owned by Google I acted responsibly For its part in technology diffusion, luck mentioned. But he left Google in May so he can speak Freely about “the dangers of artificial intelligence,” he tweeted.

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