JPMorgan to the rescue

A FDIC flyer about the takeover of First Republic Bank and its sale to JPMorgan Chase is displayed on a window at First Republic Bank’s office on May 1, 2023 in San Francisco, California.

Justin Sullivan | Getty Images News | Getty Images

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Markets were remarkably quiet after the second largest bank failure in US history. Investors are waiting for the Federal Reserve meeting and Apple’s earnings.

Markets were remarkably quiet after the second largest bank failure in US history. The major indexes fell, but only marginally.

The Dow Jones Industrial Average fell 0.14%, the S&P 500 was basically unchanged, and the Nasdaq Composite fell 0.11%.

One reason was that the First Republic’s failure – and its takeover by a larger bank – had been unexpected. Indeed, interference of some sort has seemed evident since First Republic announced last Monday that it had lost 40% of its deposits in the first quarter, while net interest income was down 30% year-over-year. These kind of numbers are simply not sustainable.

Thus, JPMorgan’s takeover of First Republic came not as a shock, but as a relief. First Republic was akin to a wound that wouldn’t close, creating uncertainty even as the rest of the banking sector tried to recover from the failures of SVB and Signature Bank.

“Now, that wall of anxiety may be easing,” Wells Fargo banking analyst Mike Mayo said in a note to clients. “FRC solution must end 7 weeks after SVB bank crisis.”

(Although, to offer the opposite view, Gary Cohn, former chief operating officer of Goldman Sachs, told CNBC, “This is not the end” of the troubles in the banking world.)

Another reason for hesitation in the markets is the Federal Reserve meeting this week. The First Republic acquisition may help stabilize the health of regional banks, prompting investors to increase their bets that the Federal Reserve will raise interest rates by a quarter of a percentage point. Markets hate making big moves before the Fed meeting.

Finally, investors are waiting for Apple to report quarterly results on Thursday.

“Apple will be critical,” said Quincy Crosby, chief global strategist at LBL Financial, adding: “It gives you a perspective on global demand. Apple is in so many portfolios in so many different sectors. Obviously, it’s very important, it might be Top big tech gains.”

In short: The failure of First Republic and its acquisition by JPMorgan is a big deal (and a good deal for the largest bank in the US!) — but it probably matters more to JPMorgan than to investors watching the broader market moves.

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