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JPMorgan Chase Bank Assumes All the Deposits of First Republic Bank

554 points by robbiet480 3y ago

robbiet480 3y ago
This means the feds did decide to make an exception to the rule that bans banks that have more than 10% of nationwide deposits from acquiring another bank. Also this is the second largest bank failure in US history.
pearjuice 3y ago
Meaning JPM was also granted a new exemption to the 10% deposit cap in this acquisition? There are regulations[0] preventing banks with >=10% of US deposits to grow larger in size by acquiring other banks. Another win for TBTF theorists. [0] https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform-should-spur-consolidation/ https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform...
- skinnymuch 3y ago
  A win for anti-capitalist theorists as well.
  - once_inc 3y ago
    Don't forget the cryptocurrency adherents..
eternalban 3y ago
Michael Barr's testimony - https://www.federalreserve.gov/newsevents/testimony/barr20230328a.htm https://www.federalreserve.gov/newsevents/testimony/barr2023... WSJ editorial on above - https://www.wsj.com/amp/articles/the-fed-absolves-itself-silicon-valley-bank-michael-barr-congress-federal-reserve-failure-2c675ba1 https://www.wsj.com/amp/articles/the-fed-absolves-itself-sil... - https://archive.is/drchc https://archive.is/drchc
- deleted 3y ago
  [deleted]
TekMol 3y ago
More centralization. This just balloons up giants which are too big to fail. The end result as always: More money printing. The genie was let out of the bottle in 2008 and will not be put back: https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE
- JumpCrisscross 3y ago
  > end result as always: More money printing You linked to a chart showing a 10% decrease in the monetary base from peak, even including the run-up since February.
  - TekMol 3y ago
    https://xkcd.com/1321/ https://xkcd.com/1321/
    - JumpCrisscross 3y ago
      Comparing the monetary base to average temperatures makes no sense. We expect the latter to be stable long term (human-wise). We want the former to track GDP, more or less [1]. In that metric, too, the anomalous period was 2008 - 2020, with a phase change towards less money per unit of GDP since. There are many reasonable issues with this purchase and sale. But “money printer go brr” isn’t a particularly insightful nor relevant one. [1] https://fred.stlouisfed.org/graph/?g=lJS https://fred.stlouisfed.org/graph/?g=lJS
      - TekMol 3y ago
        "We want" ... not sure if a vote would really turn out that way. I think for most people having something like the gold standard seems much more plausible. Having a flexible supply of the settlement currency is a pretty new experiment. Not even 100 years old. And it has ended in desasters around the world multiple times already.
        JumpCrisscross 3y ago
sidcool 3y ago
Nothing with JPMorgan in it can be good news.
vrglvrglvrgl 3y ago
[dead]
slaw 3y ago
> The FDIC and JPMorgan Chase Bank, National Association, are also entering into a loss-share transaction on single family ... The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion So only estimated $13 billion will be printed.
- JumpCrisscross 3y ago
  > only estimated $13 billion will be printed Not printed. FDIC would levy a special assessment on its member banks, including JPMorgan, if those costs are realised. (Note that up to $40bn of enterprise value [1] was also just destroyed.) [1] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value
  - deleted 3y ago
    [deleted]
  - snake_doc 3y ago
    Technically, the Fed has been providing most of the liquidity to the FDIC in the last 2 months. The FDIC isn’t liquid. This most definitely is “printing” money as the Fed generates money in the system when it lends. If you look at the Fed’s weekly lending (H.4.1), you can see the FDIC has borrowed upwards of 170B in the last 2 months, not including FRC deal. In the FRC deal, FDIC is giving JPM a 50B term loan, which is most likely again borrowed from the Fed. There’s some speculation why this had to happen, ie the Treasury cannot provide the liquidity due to debt limit, etc… https://bpi.com/the-mysterious-footnote-7-to-whom-and-on-what-terms-is-the-fed-lending-173-billion/ https://bpi.com/the-mysterious-footnote-7-to-whom-and-on-wha...
    - JumpCrisscross 3y ago
      > the Fed has been providing most of the liquidity to the FDIC in the last 2 months I’ve seen this claim from AEI folks [1], and while I’m listening, I’m not (yet) buying it. It looks more like the BTFP [2][3]. (EDIT: It’s not the BTFP. Something screwy here, but unclear how much.) > the FRC deal, FDIC is giving JPM a 50B term loan, which is most likely again borrowed from the Fed Source? The press release notes a loss-sharing arrangement. No loan. (EDIT: there is a loan.) [1] https://thehill.com/opinion/finance/3908515-the-fed-circumvented-the-debt-ceiling-to-borrow-billions-for-failed-banks/ https://thehill.com/opinion/finance/3908515-the-fed-circumve... [2] https://www.federalreserve.gov/financial-stability/bank-term-funding-program.htm https://www.federalreserve.gov/financial-stability/bank-term... [3] https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
blitzar 3y ago
> as of April 13, 2023, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits It seems a bit laughable that funny money accounting is allowed to be reported as facts. The loaf of bread I bought 4 weeks ago for $1 that is now stale and mouldy is neither worth $1 nor should be on my balance sheet as worth $1.
- 0xy 3y ago
  If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that building is worth $10m, not $2m.
  - blitzar 3y ago
    Given the cost is estimated to be $13bn, after the assets are wound down "to the right buyer after a few months on the market" the $229.1 billion is pure fantasy
  - _s 3y ago
    Unless you did have a fire sale and it went for $2M - that's what it's worth at that moment in time. Sure it could be worth $10M in the future, but it isn't right now.
  - JumpCrisscross 3y ago
    There were no fire sales of Treasuries. They’re actually just worth less. The problem is we treat HTM securities as both inviolable in value and liquid.
  - kgwgk 3y ago
    If you own a building that it’s 100% certain to be sold for $10m in six months then that building is not worth more than $9.75m today.
  - CPLX 3y ago
    That’s not correct. Assuming the $10MM sale is a certainty then the building is worth just slightly less than that, accounting for six months of interest at the prevailing rate. Assuming the interest rate is around 4-5% as it is now, that means the building is worth a couple hundred thousand less than $10MM. That’s the definition of “slightly less” in the exact scenario you set up. If you think a couple hundred grand doesn’t matter you are free to wire it to me at your leisure. Now make six months into six years or sixteen years and you understand the problem better.
ZeljkoS 3y ago
Three out of five largest bank failures in the United States happened in the past two months (SVB, Signature, and First Republic): https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
- JumpCrisscross 3y ago
  If you’re looking for a list, the eleven regional lenders Moody’s downgraded last week are good place start [1]. Given we have de facto uncapped the FDIC’s insurance limit, I’m not sure it’s a good place to stew unless out of personal interest. [1] https://www.wsj.com/articles/moodys-downgrades-11-regional-banks-including-zions-u-s-bank-western-alliance-174e4d7f https://www.wsj.com/articles/moodys-downgrades-11-regional-b...
  - Dalewyn 3y ago
    >Given we have de facto uncapped the FDIC’s insurance limit, It was never capped in any hard manner, remember the fine print is "up to at least" $250,000.00. The limit can be as high as the FDIC's feeling that particular day, the only thing set in stone is the floor of $250,000.00.
    - JumpCrisscross 3y ago
      > limit can be as high as the FDIC's feeling that particular day Technically, the FDIC has to find the failure to be systemically important. Legally, nobody defined what that process should be, so you are in practice correct.
    - zamnos 3y ago
      In this case > All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.
      - pjc50 3y ago
ipsum2 3y ago
First Republic had a market cap of $22 billion 2 months ago. It's not mentioned in the press release, do the investors get nothing?
- boeingUH60 3y ago
  They are getting wiped out...such is the risk of equity investments.
  - GalenErso 3y ago
    This is the way.
- JumpCrisscross 3y ago
  > do the investors get nothing? Correct. JPMorgan “is not assuming First Republic’s corporate debt or preferred stock” [1]. Including that debt, the total value vaporised could be up to $40bn [2]. That said, JPMorgan acquired “substantially all of the assets of First Republic Bank,” so there will be scraps to fight over. [1] https://www.ft.com/content/0c61a540-e6be-4bca-8054-841d9983756b https://www.ft.com/content/0c61a540-e6be-4bca-8054-841d99837... [2] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value
  - deleted 3y ago
    [deleted]
  - loeg 3y ago
    I'm surprised the debt got totally wiped out too on $220B in (HTM) assets vs $100B in deposits. Those assets have to be severely discounted to arrive at JPMorgan's $2.6B windfall figure. Just last week Levine was saying: > First Republic estimated as of Dec. 31 that its assets were worth about $27 billion less than their carrying value. So figure its assets are worth something like $206 billion on a good day. So I'm wondering where the gap is. > Meanwhile it has ... about $105 billion of secured borrowing from the Federal Reserve and Federal Home Loan Bank system. Presumably JPMorgan is assuming FR's debt to the these central banks?
SilverBirch 3y ago
What I find interesting is that a lot of people are pointing to this and getting worried because these bank failures are the largest since the GFC. But aren't we actually so far seeing the opposite of what we should be worried about. In the GFC the problem that this all became a disorderly collapse. But so far this has seemed... pretty orderly? No depositors have been wiped out, no contagion has spread. Sure, equity holders got wiped out, but that's what equity holders are risking in return for their higher expected returns. It's difficult to celebrate "well things haven't completely blown up so far"... but, well, it's possible that this particular problem is actually being handled in a better way than last time.
- JumpCrisscross 3y ago
  > it's possible that this particular problem is actually being handled in a better way than last time It seems to be. Fingers crossed. And we have solutions to keep it from happening again this way. I’ve seen smart proposals. One I like is banks get to choose: HTM securities are liquid and marked to market or inviolable in value, in which case they’re held at face but do not count as liquid. (One can also do something fancy in between, but that seems to invite trouble.)
  - echelon 3y ago
    I like your other comment down thread, >> slaw 51 minutes ago >> only estimated $13 billion will be printed > JumpCrisscross 46 minutes ago > Not printed. FDIC would levy a special assessment on its > member banks, including JPMorgan, if those costs are > realised. (Note that up to $40bn of enterprise value [1] > was also just destroyed.) "Equivalent exchange."
    - JumpCrisscross 3y ago
      The special assessment was discussed in respect of SVB [1]. [1] https://www.reuters.com/markets/us/fdics-special-fee-make-banks-pay-svb-cleanup-2023-04-12/ https://www.reuters.com/markets/us/fdics-special-fee-make-ba...
  - 3y ago
chris123 3y ago
So much for fixing the TBTF problem. More and more centralization is not the answer. In fact, decentralization is the answer, and letting poor money managers, investors, woke companies, cities, states, countries etc. go broke. The capital will get reallocated into the hands of more capable people and companies, as it should be.
aliljet 3y ago
What did this cost JPMorgan? From the outside looking in, it seems like they walked away with assets and little to no liabilities.
- consp 3y ago
  Isn't the liability the accounts they also acquired? If the assets don't cover it whole?
  - DebtDeflation 3y ago
    Yes. From the perspective of the bank, the deposit is the liability and the loan is the asset. People online always get this wrong because they look at it from the perspective of the individual/business on the other end of the transaction.
- HPsquared 3y ago
  Bank deposit is a debt owed by the bank to the customer. So by assuming the deposits they assumed this debt. On the other hand they will also have assumed the assets of the bank (including these problematic bonds).
- HWR_14 3y ago
  They took over the bank, taking all its assets but also assuming responsibility for all its liabilities to its depositors.
  - xeromal 3y ago
    The assets being loans and such and the liabilities meaning the bank accounts people held?
    - HWR_14 3y ago
      Exactly. The important thing to the people who deposited money is that they get made whole, but the shareholders will still get nothing (or a nominal sum) so they still have an incentive to hold the bank executives accountable in the future.
deleted 3y ago
[deleted]
bwb 3y ago
I don't quite get like this is making the front page of HN. Banking system working as intended, FDIC doing a great job like normal.
- kenneth 3y ago
  The FDIC killed a bank that was absolutely fine. For the 3rd time in 2 months. FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it. The FDIC just wanted to flex its muscle because it didn't like the situation — but there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine. Fuck the FDIC and fuck Jerome Powell for causing all this unnecessary destruction.
  - JumpCrisscross 3y ago
    > FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it This is totally incorrect. Face value and market value are a material difference when one faces a liquidity crunch. First Republic was in a slow death spiral for months, and everyone across its capital structure knew it for at least a week. > there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine You can’t tell depositors you won’t give them their money for ten years.
  - disgruntledphd2 3y ago
    Well except for the $100bn of deposits they'd lost in the last month they were totally fine! Tis but a scratch...come back and I'll bite your legs off ;)
  - bwb 3y ago
    I don't understand, the bank is having a massive run on it and collapsing. Thus the FDIC steps in per the norms of the last 50 years and fixes it. The system works like a charm? How is this bank fine? They have lost confidence and everyone is pulling their money out. They would collapse if not for FDIC insurance and the system stepping in.
    - 3y ago
kenneth 3y ago
This is the fault of of one person: Jerome Powell. That man has done more damage to the US and the world than any of the biggest calamities that come to mind (9/11, Katrina, Trump/Biden/Fauci depending on your politics). The last 3 years of monetary policy have been the biggest destructive f-up ever imaginable. Printing endless money causing the collapse of the value of the dollar, causing serious inflation, to an insane raise in rates to try to undo the damage which (1) not only destroys the entire banking sector and tech industry, and (2) did absolutely nothing to fix the destruction of the USD.
- ideamotor 3y ago
  uh huh
- deleted 3y ago
  [deleted]
- HPsquared 3y ago
  Raising the rates does help control inflation, e.g. Volcker. It's still negative real rates though (that is, interest rate minus inflation). Only just starting to become positive. The rates needed to follow inflation or you'd have a runaway unstable situation of inflation causing real rates to become more and more negative, feeding back into more inflation.
- snordgren 3y ago
  Americans worry about the dollar going to zero, meanwhile it was recently at a 20-year high against the euro, the pound, and the yen. Inflation has dipped to 5% and unemployment is lower than in decades. For all its faults, American monetary policy has been better than that of most other developed countries. The ECB went 11 years without raising interest rates.
  - TexanFeller 3y ago
    The current condition is not what we're worried about, it's ongoing stability which is an open question which I'm not optimistic about.
snake_doc 3y ago
The spoils go to… “As a result of this transaction, JPMorgan Chase expects to: Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion dollars of post-tax restructuring costs anticipated over the next 18 months […] The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, not including the approximately $2.6 billion one-time post-tax gain or approximately $2.0 billion of post-tax restructuring costs expected over the course of 2023 and 2024.” https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...
- hparadiz 3y ago
  Lol. People acting like the world is ending when the reality is this is a classic run on banks. There's still a ton of outstanding loans that will be now paying Chase for the next 20-30 years. Larger banks can more easily accommodate depositor withdrawals. It's not like the subprime mortgage crises at all but even that turned out a net profit for the feds when all was said and done.
nologic01 3y ago
This is bad news on two fronts: * the risk driver for these ongoing smaller bank failures is (reportedly) the rise in interest rates. This concerns such a basic aspect of bank risk management one wonders how this sector could even call it self banking * the solution seems to be to create ever larger banking behemoths (on the premise that they they can better manage risks) - as if we don't have enough examples (Lehman, Credit Suisse that this is not so). In fact this aggregation only commingles all sort of risks inside a gigantic opaque pool, makes the private-public dependency (TBTF) and all its perverse incentives even more entrenched, and ultimately creates the conditions for systemic failure It is all so egregiously non-sensical and sub-optimal. People famously have the political systems that they deserve. In turn this perpetuates the banking systems that they deserve.
- papito 3y ago
  "Larger banking behemoths" is NOT the solution - it's the result of deregulation and gutting of oversight - also referred to by libertarians here as "small government". These banks should have been aggressively audited and diversification should have been enforced, as it used to be. We just keep going in this "deregulate-collapse-regulate" cycle.
  - junofan 3y ago
    They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works.
    - matwood 3y ago
      > This is just how our banking system works. That's just how business works. Many businesses would have a hard time surviving losing 40% of their business in a short period of time.
    - TacticalCoder 3y ago
      > They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works. You're making it sound like people taking out their money out were those in the wrong, causing the failure of the bank. That's not what happened. People taking their money out were in the right. The root cause is bankers at FRB miscalculating risk. And they are those who were wrong.
lvl102 3y ago
All these recent bank failures due to lack of oversight by the Fed. As we learned in 2008, you can’t just blame financial institutions because they’re going to take the easiest route every single time. The Fed is there for a reason. They completely failed to do their job with Powell leading that organization. They internally knew what they intended to do with their rate policy but did not do any stress tests for banks. I find that incredibly incompetent. More to come.
- junofan 3y ago
  Yeah. I was surprised to learn Powell is older than Bernanke. Some of Yellen’s comments around SVB weren’t very confidence-inspiring either. I don’t think the Powell-Yellen duo is up to the task.
robbiet480 3y ago
JPM has just released a press release with more details [0] - Acquisition of the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities - Assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation - FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing - JPMorgan Chase is not assuming First Republic’s corporate debt or preferred stock https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...
drumhead 3y ago
It's one of the dominoes, the attention of the market is going to turn to the next target now, and this will keep going until there's a general government/ market solution to the regional bank problem. The same people saving the bank are going to be the same people pushing the next bank to crisis.
DueDilligence 3y ago
[dead]
qaq 3y ago
soon there will be like 5 banks
- morkalork 3y ago
  Welcome to what life is like in Canada! Do you want to bank with the blue, green or red one?
  - xmcqdpt2 3y ago
    Actually there are two blue ones and two red ones! So you can keep the colour you like and still switch to a competitor! All you have to do is book an appointment in advance to go in person to a branch between 9 and 5pm on a work day to close your account.
INGSOCIALITE 3y ago
At this point why even bother having separate banks? If one fails they just roll the deposit accounts over to another, bigger bank?
- LudwigNagasena 3y ago
  Soon all your money will be held at your personal account directly at the central bank.
  - toomuchtodo 3y ago
    This sounds fine. Probably the same or better customer service then I get from JPMC. Never let a crisis go to waste. https://www.congress.gov/bill/116th-congress/senate-bill/3571 https://www.congress.gov/bill/116th-congress/senate-bill/357...
    - deleted 3y ago
      [deleted]
fnord77 3y ago
schwab bank is next
nickpinkston 3y ago
RIP First Republic - I hope something of their customer service culture stays on. Unsure that's realistic, but maybe JPM could have kind of "private business banking" or something? I was a customer there for ~12 years through multiple companies. Hope everyone I've worked with is okay.
- ericpauley 3y ago
  JPMC will give you arbitrarily special treatment depending on your assets. They have Private Client products for larger depositors, but obviously it goes up from there.
  - nickpinkston 3y ago
    Yea, I assume so, but my company's several million of cash may not qualify as that material for them haha. Fingers crossed it works out okay.
  - umeshunni 3y ago
    Private Client is their mass market product for anyone with over 150K (aka the Mass Affluent): https://upgradedpoints.com/finance/chase-private-client/ https://upgradedpoints.com/finance/chase-private-client/ https://en.wikipedia.org/wiki/Mass_affluent https://en.wikipedia.org/wiki/Mass_affluent Private Bank is their product for HNW clients (https://privatebank.jpmorgan.com/ https://privatebank.jpmorgan.com/)
MichaelMoser123 3y ago
so will it now be harder to get credit? What do the experts say? One of the problems of the last bank run: the remaining banks were unwilling to grant any new loans - because they were afraid to take up any new risks. Is it possible that we will we see something similar?
- peter422 3y ago
  Every loan banks give out now helps their balance sheet since interest rates are higher. Don't think they'll stop.
photochemsyn 3y ago
One Bank to rule them all, One Bank to find them. One Bank to bring them all, and in the darkness bind them. Financial monopolization of the economy will not end well.
- Spivak 3y ago
  Or it will work out since at this point large national banks are regulated to the point of de facto control by the government where failing stops having the same meaning.
SeanAnderson 3y ago
Does anyone have a clear picture of how this affects the employees and office footprint of FRB in the short and long term? FRB had announced 25% layoffs last week. Is that still on the table? Does it go higher? FRB is one of the largest leasers of commercial office space in SF at 150,000 sqft*. Is it expected that there will be significant reduction here? Or business as usual? * https://www.crexi.com/insights/the-san-francisco-commercial-real-estate-market#:~:text=First%20Republic%20Bank%20150%2C000%20SF%2C https://www.crexi.com/insights/the-san-francisco-commercial-...
- bragr 3y ago
  Typically in these kinds of situations, most of the customer facing branch employees keep their jobs but no so much with the back office people.
ineedasername 3y ago
Seems like yet another example of a disaster that (might) have been avoided if congress, in 2018, hadn't rolled back pieces of Dodd-Frank. Before that, banks with > $50B had to take stronger precautions, but that limit was raised in 2018 to $250B. FRB had assets around $220B.
- peter422 3y ago
  No bank in existence could handle losing 40% of their deposits in a few days. You can't possibly protect against that while also operating the business of being a bank as we think of it.
  - ineedasername 3y ago
    Would people panic & withdraw their deposits if the bank had been more cautious? That's the main question. It can't really be proven either way, but it seems fairly plausible that a bank with much less risk would have far fewer panicked depositors.
    - dymk 3y ago
      Doubtful, as 99% of people aren't taking a detailed look at the bank's risk profile when they're deciding to withdraw their cash. It's a knee-jerk reaction to keep their money safe. After all, FR was actually safe, had their not been a run.
      - xeromal 3y ago
        In FR's case, 63-68% (I can't remember the exact number) of all accounts that withdrew were over the 250k limit.
        dymk 3y ago
        FDIC is not a "Limit up to $250k", it's "At least $250k", and the FDIC has in all cases made accountholders whole even past $250k.
timcavel 3y ago
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ultrasaurus 3y ago
As always, Matt Levine is ready with the numbers: https://www.bloomberg.com/opinion/articles/2023-04-26/first-republic-calls-in-a-favor https://www.bloomberg.com/opinion/articles/2023-04-26/first-... https://archive.is/zJsPo https://archive.is/zJsPo
moutansos 3y ago
If anyone wanted to keep on top of these bank failures and be alerted when it happens, I built a very simple bank failure API/RSS feed from the data coming off of the FDIC website: https://benbrougher.tech/projects/bank-failures/ https://benbrougher.tech/projects/bank-failures/ It's nothing fancy, just a for fun project
6451937099 3y ago
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554 points by robbiet480 3y ago

This means the feds did decide to make an exception to the rule that bans banks that have more than 10% of nationwide deposits from acquiring another bank. Also this is the second largest bank failure in US history.

pearjuice 3y ago

Meaning JPM was also granted a new exemption to the 10% deposit cap in this acquisition? There are regulations[0] preventing banks with >=10% of US deposits to grow larger in size by acquiring other banks. Another win for TBTF theorists. [0] https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform-should-spur-consolidation/ https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform...

skinnymuch 3y ago
A win for anti-capitalist theorists as well.
- once_inc 3y ago
  Don't forget the cryptocurrency adherents..

eternalban 3y ago

Michael Barr's testimony - https://www.federalreserve.gov/newsevents/testimony/barr20230328a.htm https://www.federalreserve.gov/newsevents/testimony/barr2023... WSJ editorial on above - https://www.wsj.com/amp/articles/the-fed-absolves-itself-silicon-valley-bank-michael-barr-congress-federal-reserve-failure-2c675ba1 https://www.wsj.com/amp/articles/the-fed-absolves-itself-sil... - https://archive.is/drchc https://archive.is/drchc

deleted 3y ago
[deleted]

TekMol 3y ago

More centralization. This just balloons up giants which are too big to fail. The end result as always: More money printing. The genie was let out of the bottle in 2008 and will not be put back: https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE

JumpCrisscross 3y ago
> end result as always: More money printing You linked to a chart showing a 10% decrease in the monetary base from peak, even including the run-up since February.
- TekMol 3y ago
  https://xkcd.com/1321/ https://xkcd.com/1321/
  - JumpCrisscross 3y ago
    Comparing the monetary base to average temperatures makes no sense. We expect the latter to be stable long term (human-wise). We want the former to track GDP, more or less [1]. In that metric, too, the anomalous period was 2008 - 2020, with a phase change towards less money per unit of GDP since. There are many reasonable issues with this purchase and sale. But “money printer go brr” isn’t a particularly insightful nor relevant one. [1] https://fred.stlouisfed.org/graph/?g=lJS https://fred.stlouisfed.org/graph/?g=lJS
    - TekMol 3y ago
      "We want" ... not sure if a vote would really turn out that way. I think for most people having something like the gold standard seems much more plausible. Having a flexible supply of the settlement currency is a pretty new experiment. Not even 100 years old. And it has ended in desasters around the world multiple times already.
      - JumpCrisscross 3y ago

sidcool 3y ago

Nothing with JPMorgan in it can be good news.

vrglvrglvrgl 3y ago

[dead]

slaw 3y ago

> The FDIC and JPMorgan Chase Bank, National Association, are also entering into a loss-share transaction on single family ... The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion So only estimated $13 billion will be printed.

JumpCrisscross 3y ago
> only estimated $13 billion will be printed Not printed. FDIC would levy a special assessment on its member banks, including JPMorgan, if those costs are realised. (Note that up to $40bn of enterprise value [1] was also just destroyed.) [1] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value
- deleted 3y ago
  [deleted]
- snake_doc 3y ago
  Technically, the Fed has been providing most of the liquidity to the FDIC in the last 2 months. The FDIC isn’t liquid. This most definitely is “printing” money as the Fed generates money in the system when it lends. If you look at the Fed’s weekly lending (H.4.1), you can see the FDIC has borrowed upwards of 170B in the last 2 months, not including FRC deal. In the FRC deal, FDIC is giving JPM a 50B term loan, which is most likely again borrowed from the Fed. There’s some speculation why this had to happen, ie the Treasury cannot provide the liquidity due to debt limit, etc… https://bpi.com/the-mysterious-footnote-7-to-whom-and-on-what-terms-is-the-fed-lending-173-billion/ https://bpi.com/the-mysterious-footnote-7-to-whom-and-on-wha...
  - JumpCrisscross 3y ago
    > the Fed has been providing most of the liquidity to the FDIC in the last 2 months I’ve seen this claim from AEI folks [1], and while I’m listening, I’m not (yet) buying it. It looks more like the BTFP [2][3]. (EDIT: It’s not the BTFP. Something screwy here, but unclear how much.) > the FRC deal, FDIC is giving JPM a 50B term loan, which is most likely again borrowed from the Fed Source? The press release notes a loss-sharing arrangement. No loan. (EDIT: there is a loan.) [1] https://thehill.com/opinion/finance/3908515-the-fed-circumvented-the-debt-ceiling-to-borrow-billions-for-failed-banks/ https://thehill.com/opinion/finance/3908515-the-fed-circumve... [2] https://www.federalreserve.gov/financial-stability/bank-term-funding-program.htm https://www.federalreserve.gov/financial-stability/bank-term... [3] https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...

blitzar 3y ago

> as of April 13, 2023, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits It seems a bit laughable that funny money accounting is allowed to be reported as facts. The loaf of bread I bought 4 weeks ago for $1 that is now stale and mouldy is neither worth $1 nor should be on my balance sheet as worth $1.

0xy 3y ago
If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that building is worth $10m, not $2m.
- blitzar 3y ago
  Given the cost is estimated to be $13bn, after the assets are wound down "to the right buyer after a few months on the market" the $229.1 billion is pure fantasy
- _s 3y ago
  Unless you did have a fire sale and it went for $2M - that's what it's worth at that moment in time. Sure it could be worth $10M in the future, but it isn't right now.
- JumpCrisscross 3y ago
  There were no fire sales of Treasuries. They’re actually just worth less. The problem is we treat HTM securities as both inviolable in value and liquid.
- kgwgk 3y ago
  If you own a building that it’s 100% certain to be sold for $10m in six months then that building is not worth more than $9.75m today.
- CPLX 3y ago
  That’s not correct. Assuming the $10MM sale is a certainty then the building is worth just slightly less than that, accounting for six months of interest at the prevailing rate. Assuming the interest rate is around 4-5% as it is now, that means the building is worth a couple hundred thousand less than $10MM. That’s the definition of “slightly less” in the exact scenario you set up. If you think a couple hundred grand doesn’t matter you are free to wire it to me at your leisure. Now make six months into six years or sixteen years and you understand the problem better.

ZeljkoS 3y ago

Three out of five largest bank failures in the United States happened in the past two months (SVB, Signature, and First Republic): https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...

JumpCrisscross 3y ago
If you’re looking for a list, the eleven regional lenders Moody’s downgraded last week are good place start [1]. Given we have de facto uncapped the FDIC’s insurance limit, I’m not sure it’s a good place to stew unless out of personal interest. [1] https://www.wsj.com/articles/moodys-downgrades-11-regional-banks-including-zions-u-s-bank-western-alliance-174e4d7f https://www.wsj.com/articles/moodys-downgrades-11-regional-b...
- Dalewyn 3y ago
  >Given we have de facto uncapped the FDIC’s insurance limit, It was never capped in any hard manner, remember the fine print is "up to at least" $250,000.00. The limit can be as high as the FDIC's feeling that particular day, the only thing set in stone is the floor of $250,000.00.
  - JumpCrisscross 3y ago
    > limit can be as high as the FDIC's feeling that particular day Technically, the FDIC has to find the failure to be systemically important. Legally, nobody defined what that process should be, so you are in practice correct.
  - zamnos 3y ago
    In this case > All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.
    - pjc50 3y ago

ipsum2 3y ago

First Republic had a market cap of $22 billion 2 months ago. It's not mentioned in the press release, do the investors get nothing?

boeingUH60 3y ago
They are getting wiped out...such is the risk of equity investments.
- GalenErso 3y ago
  This is the way.
JumpCrisscross 3y ago
> do the investors get nothing? Correct. JPMorgan “is not assuming First Republic’s corporate debt or preferred stock” [1]. Including that debt, the total value vaporised could be up to $40bn [2]. That said, JPMorgan acquired “substantially all of the assets of First Republic Bank,” so there will be scraps to fight over. [1] https://www.ft.com/content/0c61a540-e6be-4bca-8054-841d9983756b https://www.ft.com/content/0c61a540-e6be-4bca-8054-841d99837... [2] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value
- deleted 3y ago
  [deleted]
- loeg 3y ago
  I'm surprised the debt got totally wiped out too on $220B in (HTM) assets vs $100B in deposits. Those assets have to be severely discounted to arrive at JPMorgan's $2.6B windfall figure. Just last week Levine was saying: > First Republic estimated as of Dec. 31 that its assets were worth about $27 billion less than their carrying value. So figure its assets are worth something like $206 billion on a good day. So I'm wondering where the gap is. > Meanwhile it has ... about $105 billion of secured borrowing from the Federal Reserve and Federal Home Loan Bank system. Presumably JPMorgan is assuming FR's debt to the these central banks?

SilverBirch 3y ago

What I find interesting is that a lot of people are pointing to this and getting worried because these bank failures are the largest since the GFC. But aren't we actually so far seeing the opposite of what we should be worried about. In the GFC the problem that this all became a disorderly collapse. But so far this has seemed... pretty orderly? No depositors have been wiped out, no contagion has spread. Sure, equity holders got wiped out, but that's what equity holders are risking in return for their higher expected returns. It's difficult to celebrate "well things haven't completely blown up so far"... but, well, it's possible that this particular problem is actually being handled in a better way than last time.

JumpCrisscross 3y ago
> it's possible that this particular problem is actually being handled in a better way than last time It seems to be. Fingers crossed. And we have solutions to keep it from happening again this way. I’ve seen smart proposals. One I like is banks get to choose: HTM securities are liquid and marked to market or inviolable in value, in which case they’re held at face but do not count as liquid. (One can also do something fancy in between, but that seems to invite trouble.)
- echelon 3y ago
  I like your other comment down thread, >> slaw 51 minutes ago >> only estimated $13 billion will be printed > JumpCrisscross 46 minutes ago > Not printed. FDIC would levy a special assessment on its > member banks, including JPMorgan, if those costs are > realised. (Note that up to $40bn of enterprise value [1] > was also just destroyed.) "Equivalent exchange."
  - JumpCrisscross 3y ago
    The special assessment was discussed in respect of SVB [1]. [1] https://www.reuters.com/markets/us/fdics-special-fee-make-banks-pay-svb-cleanup-2023-04-12/ https://www.reuters.com/markets/us/fdics-special-fee-make-ba...
- 3y ago

chris123 3y ago

So much for fixing the TBTF problem. More and more centralization is not the answer. In fact, decentralization is the answer, and letting poor money managers, investors, woke companies, cities, states, countries etc. go broke. The capital will get reallocated into the hands of more capable people and companies, as it should be.

aliljet 3y ago

What did this cost JPMorgan? From the outside looking in, it seems like they walked away with assets and little to no liabilities.

consp 3y ago
Isn't the liability the accounts they also acquired? If the assets don't cover it whole?
- DebtDeflation 3y ago
  Yes. From the perspective of the bank, the deposit is the liability and the loan is the asset. People online always get this wrong because they look at it from the perspective of the individual/business on the other end of the transaction.
HPsquared 3y ago
Bank deposit is a debt owed by the bank to the customer. So by assuming the deposits they assumed this debt. On the other hand they will also have assumed the assets of the bank (including these problematic bonds).
HWR_14 3y ago
They took over the bank, taking all its assets but also assuming responsibility for all its liabilities to its depositors.
- xeromal 3y ago
  The assets being loans and such and the liabilities meaning the bank accounts people held?
  - HWR_14 3y ago
    Exactly. The important thing to the people who deposited money is that they get made whole, but the shareholders will still get nothing (or a nominal sum) so they still have an incentive to hold the bank executives accountable in the future.

deleted 3y ago

[deleted]

bwb 3y ago

I don't quite get like this is making the front page of HN. Banking system working as intended, FDIC doing a great job like normal.

kenneth 3y ago
The FDIC killed a bank that was absolutely fine. For the 3rd time in 2 months. FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it. The FDIC just wanted to flex its muscle because it didn't like the situation — but there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine. Fuck the FDIC and fuck Jerome Powell for causing all this unnecessary destruction.
- JumpCrisscross 3y ago
  > FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it This is totally incorrect. Face value and market value are a material difference when one faces a liquidity crunch. First Republic was in a slow death spiral for months, and everyone across its capital structure knew it for at least a week. > there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine You can’t tell depositors you won’t give them their money for ten years.
- disgruntledphd2 3y ago
  Well except for the $100bn of deposits they'd lost in the last month they were totally fine! Tis but a scratch...come back and I'll bite your legs off ;)
- bwb 3y ago
  I don't understand, the bank is having a massive run on it and collapsing. Thus the FDIC steps in per the norms of the last 50 years and fixes it. The system works like a charm? How is this bank fine? They have lost confidence and everyone is pulling their money out. They would collapse if not for FDIC insurance and the system stepping in.
  - 3y ago

kenneth 3y ago

This is the fault of of one person: Jerome Powell. That man has done more damage to the US and the world than any of the biggest calamities that come to mind (9/11, Katrina, Trump/Biden/Fauci depending on your politics). The last 3 years of monetary policy have been the biggest destructive f-up ever imaginable. Printing endless money causing the collapse of the value of the dollar, causing serious inflation, to an insane raise in rates to try to undo the damage which (1) not only destroys the entire banking sector and tech industry, and (2) did absolutely nothing to fix the destruction of the USD.

ideamotor 3y ago
uh huh
deleted 3y ago
[deleted]
HPsquared 3y ago
Raising the rates does help control inflation, e.g. Volcker. It's still negative real rates though (that is, interest rate minus inflation). Only just starting to become positive. The rates needed to follow inflation or you'd have a runaway unstable situation of inflation causing real rates to become more and more negative, feeding back into more inflation.
snordgren 3y ago
Americans worry about the dollar going to zero, meanwhile it was recently at a 20-year high against the euro, the pound, and the yen. Inflation has dipped to 5% and unemployment is lower than in decades. For all its faults, American monetary policy has been better than that of most other developed countries. The ECB went 11 years without raising interest rates.
- TexanFeller 3y ago
  The current condition is not what we're worried about, it's ongoing stability which is an open question which I'm not optimistic about.

snake_doc 3y ago

The spoils go to… “As a result of this transaction, JPMorgan Chase expects to: Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion dollars of post-tax restructuring costs anticipated over the next 18 months […] The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, not including the approximately $2.6 billion one-time post-tax gain or approximately $2.0 billion of post-tax restructuring costs expected over the course of 2023 and 2024.” https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...

hparadiz 3y ago
Lol. People acting like the world is ending when the reality is this is a classic run on banks. There's still a ton of outstanding loans that will be now paying Chase for the next 20-30 years. Larger banks can more easily accommodate depositor withdrawals. It's not like the subprime mortgage crises at all but even that turned out a net profit for the feds when all was said and done.

nologic01 3y ago

This is bad news on two fronts: * the risk driver for these ongoing smaller bank failures is (reportedly) the rise in interest rates. This concerns such a basic aspect of bank risk management one wonders how this sector could even call it self banking * the solution seems to be to create ever larger banking behemoths (on the premise that they they can better manage risks) - as if we don't have enough examples (Lehman, Credit Suisse that this is not so). In fact this aggregation only commingles all sort of risks inside a gigantic opaque pool, makes the private-public dependency (TBTF) and all its perverse incentives even more entrenched, and ultimately creates the conditions for systemic failure It is all so egregiously non-sensical and sub-optimal. People famously have the political systems that they deserve. In turn this perpetuates the banking systems that they deserve.

papito 3y ago
"Larger banking behemoths" is NOT the solution - it's the result of deregulation and gutting of oversight - also referred to by libertarians here as "small government". These banks should have been aggressively audited and diversification should have been enforced, as it used to be. We just keep going in this "deregulate-collapse-regulate" cycle.
- junofan 3y ago
  They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works.
  - matwood 3y ago
    > This is just how our banking system works. That's just how business works. Many businesses would have a hard time surviving losing 40% of their business in a short period of time.
  - TacticalCoder 3y ago
    > They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works. You're making it sound like people taking out their money out were those in the wrong, causing the failure of the bank. That's not what happened. People taking their money out were in the right. The root cause is bankers at FRB miscalculating risk. And they are those who were wrong.

lvl102 3y ago

All these recent bank failures due to lack of oversight by the Fed. As we learned in 2008, you can’t just blame financial institutions because they’re going to take the easiest route every single time. The Fed is there for a reason. They completely failed to do their job with Powell leading that organization. They internally knew what they intended to do with their rate policy but did not do any stress tests for banks. I find that incredibly incompetent. More to come.

junofan 3y ago
Yeah. I was surprised to learn Powell is older than Bernanke. Some of Yellen’s comments around SVB weren’t very confidence-inspiring either. I don’t think the Powell-Yellen duo is up to the task.

robbiet480 3y ago

JPM has just released a press release with more details [0] - Acquisition of the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities - Assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation - FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing - JPMorgan Chase is not assuming First Republic’s corporate debt or preferred stock https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...

drumhead 3y ago

It's one of the dominoes, the attention of the market is going to turn to the next target now, and this will keep going until there's a general government/ market solution to the regional bank problem. The same people saving the bank are going to be the same people pushing the next bank to crisis.

DueDilligence 3y ago

[dead]

qaq 3y ago

soon there will be like 5 banks

morkalork 3y ago
Welcome to what life is like in Canada! Do you want to bank with the blue, green or red one?
- xmcqdpt2 3y ago
  Actually there are two blue ones and two red ones! So you can keep the colour you like and still switch to a competitor! All you have to do is book an appointment in advance to go in person to a branch between 9 and 5pm on a work day to close your account.

INGSOCIALITE 3y ago

At this point why even bother having separate banks? If one fails they just roll the deposit accounts over to another, bigger bank?

LudwigNagasena 3y ago
Soon all your money will be held at your personal account directly at the central bank.
- toomuchtodo 3y ago
  This sounds fine. Probably the same or better customer service then I get from JPMC. Never let a crisis go to waste. https://www.congress.gov/bill/116th-congress/senate-bill/3571 https://www.congress.gov/bill/116th-congress/senate-bill/357...
  - deleted 3y ago
    [deleted]

fnord77 3y ago

schwab bank is next

nickpinkston 3y ago

RIP First Republic - I hope something of their customer service culture stays on. Unsure that's realistic, but maybe JPM could have kind of "private business banking" or something? I was a customer there for ~12 years through multiple companies. Hope everyone I've worked with is okay.

ericpauley 3y ago
JPMC will give you arbitrarily special treatment depending on your assets. They have Private Client products for larger depositors, but obviously it goes up from there.
- nickpinkston 3y ago
  Yea, I assume so, but my company's several million of cash may not qualify as that material for them haha. Fingers crossed it works out okay.
- umeshunni 3y ago
  Private Client is their mass market product for anyone with over 150K (aka the Mass Affluent): https://upgradedpoints.com/finance/chase-private-client/ https://upgradedpoints.com/finance/chase-private-client/ https://en.wikipedia.org/wiki/Mass_affluent https://en.wikipedia.org/wiki/Mass_affluent Private Bank is their product for HNW clients (https://privatebank.jpmorgan.com/ https://privatebank.jpmorgan.com/)

MichaelMoser123 3y ago

so will it now be harder to get credit? What do the experts say? One of the problems of the last bank run: the remaining banks were unwilling to grant any new loans - because they were afraid to take up any new risks. Is it possible that we will we see something similar?

peter422 3y ago
Every loan banks give out now helps their balance sheet since interest rates are higher. Don't think they'll stop.

photochemsyn 3y ago

One Bank to rule them all, One Bank to find them. One Bank to bring them all, and in the darkness bind them. Financial monopolization of the economy will not end well.

Spivak 3y ago
Or it will work out since at this point large national banks are regulated to the point of de facto control by the government where failing stops having the same meaning.

SeanAnderson 3y ago

Does anyone have a clear picture of how this affects the employees and office footprint of FRB in the short and long term? FRB had announced 25% layoffs last week. Is that still on the table? Does it go higher? FRB is one of the largest leasers of commercial office space in SF at 150,000 sqft*. Is it expected that there will be significant reduction here? Or business as usual? * https://www.crexi.com/insights/the-san-francisco-commercial-real-estate-market#:~:text=First%20Republic%20Bank%20150%2C000%20SF%2C https://www.crexi.com/insights/the-san-francisco-commercial-...

bragr 3y ago
Typically in these kinds of situations, most of the customer facing branch employees keep their jobs but no so much with the back office people.

ineedasername 3y ago

Seems like yet another example of a disaster that (might) have been avoided if congress, in 2018, hadn't rolled back pieces of Dodd-Frank. Before that, banks with > $50B had to take stronger precautions, but that limit was raised in 2018 to $250B. FRB had assets around $220B.

peter422 3y ago
No bank in existence could handle losing 40% of their deposits in a few days. You can't possibly protect against that while also operating the business of being a bank as we think of it.
- ineedasername 3y ago
  Would people panic & withdraw their deposits if the bank had been more cautious? That's the main question. It can't really be proven either way, but it seems fairly plausible that a bank with much less risk would have far fewer panicked depositors.
  - dymk 3y ago
    Doubtful, as 99% of people aren't taking a detailed look at the bank's risk profile when they're deciding to withdraw their cash. It's a knee-jerk reaction to keep their money safe. After all, FR was actually safe, had their not been a run.
    - xeromal 3y ago
      In FR's case, 63-68% (I can't remember the exact number) of all accounts that withdrew were over the 250k limit.
      - dymk 3y ago
        FDIC is not a "Limit up to $250k", it's "At least $250k", and the FDIC has in all cases made accountholders whole even past $250k.

timcavel 3y ago

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ultrasaurus 3y ago

As always, Matt Levine is ready with the numbers: https://www.bloomberg.com/opinion/articles/2023-04-26/first-republic-calls-in-a-favor https://www.bloomberg.com/opinion/articles/2023-04-26/first-... https://archive.is/zJsPo https://archive.is/zJsPo

moutansos 3y ago

If anyone wanted to keep on top of these bank failures and be alerted when it happens, I built a very simple bank failure API/RSS feed from the data coming off of the FDIC website: https://benbrougher.tech/projects/bank-failures/ https://benbrougher.tech/projects/bank-failures/ It's nothing fancy, just a for fun project

6451937099 3y ago

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