Banking leaders hope First Republic deal ends seven-week crisis


Banking crisis 2023

The demise of Silicon Valley Bank on March 10 was followed by the collapse of Signature Bank on March 12. And on Monday, First Republic became the third bank to fail in 2023.

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Executives at some of the country’s largest banks see JPMorgan Chase’s acquisition of First Republic as putting an end to the banking crisis that started almost two months ago.

“No one likes to see a bank fail, but it’s good to have really the last remaining source of uncertainty resolved,” Citigroup Chief Executive Officer Jane Fraser said at a conference Monday morning.

JPMorgan CEO Jamie Dimon said the banking industry can take a breath after Monday’s announcement. “No crystal ball is perfect, but, yes, the banking system is very stable,” Dimon said on a call with analysts.

America’s largest bank by assets said Monday that it would acquire much of First Republic after the Federal Deposit Insurance Corp. placed the bank into receivership. The deal marked the end to a seven-week saga at the San Francisco bank, which included a run on deposits, a $30 billion infusion from big banks and an earnings call last week where executives declined to take questions.

The actions announced Monday could work to quell any lingering unrest among depositors who may have been considering moving money from their current financial institutions, experts said.

“People see what the FDIC is doing,” said Morris Pearl, a former managing director at BlackRock who worked with financial regulators to structure Citi’s 2008 bailout. “They see that none of the depositors at First Republic are losing any money. Very few of them are even delayed by a few minutes in having access to their money.”

To be sure, there were naysayers, who criticized JPMorgan’s government-assisted acquisition of First Republic as a stopgap measure.

“Applying these banking band-aids in the middle of a panic guarantees that such lurching from crisis to crisis will continue to get even worse,” Dennis Kelleher, president of the advocacy group Better Markets, said in a statement.

And it’s not clear that an end to the First Republic story means other crises won’t arise. Banking leaders pointed to a number of specific risk factors that could cause trouble for the industry: continued interest-rate hikes, a decline in the quality of real-estate loans and a recession, among others.

But Dimon noted a key difference between the attempted rescue of First Republic in March and the deal that was struck over the weekend.

The $30 billion injection of deposits from 11 large banks came with a degree of uncertainty, as First Republic was trying to stem the tide of deposit outflows. “We didn’t know at the time whether it would be possible,” Dimon said on Monday. The deal to dissolve First Republic, on the other hand, eliminates that uncertainty.

One good indicator that the banking system is on the mend, industry executives said, is that many regional banks have reported only modest deposit outflows in recent weeks. Those deposit losses during the first quarter were because of higher interest rates, not a run on any particular bank, Dimon said. Better-than-expected bottom lines at a wide swath of banks also point to a resilient banking system.

In addition, JPMorgan’s established history of stepping in and making acquisitions during stressful periods in banking history should bolster the public’s perception of the First Republic deal, analysts said.

And the fact that First Republic’s failure didn’t require regulators to cover insured deposits puts it in a different category of bank failure than Silicon Valley Bank and Signature Bank, both of which collapsed in March.

Overall, bank investors had a muted reaction to the First Republic news. The KBW Nasdaq Banking Index, which serves as an industry benchmark tracking large and regional banks, closed down less than 2%. Shares of JPMorgan ended the day up 2% at $141.16.

Banks that reportedly made unsuccessful bids for First Republic, or considered bidding, saw their stocks fall on Monday. That likely means investors believe the acquisition would have been a value-add for the interested banks, analysts said. Bank of America, U.S. Bancorp, PNC Financial Services Group and Citizens Financial Group all closed down between 0.8% and 6.3%.

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