JP Morgan in £8.5bn deal to buy up embattled bank First Republic… But interest rate threat still looms, warns boss Jamie Dimon
JP Morgan bosses yesterday insisted that the banking system was out of the woods as it stepped in to buy up embattled bank First Republic.
The US investment bank agreed to take on most of First Republic’s assets, it was confirmed yesterday, after a request from regulators.
California lender First Republic is the third US bank to fold in recent months, sparking concerns that a wider banking crisis is looming.
But JP Morgan chiefs tried to satiate worriers on a call with analysts yesterday, with CEO Jamie Dimon insisting a slew of bank failures ought to be abating.
Prediction: JP Morgan boss Jamie Dimon (pictured) believes the recent string of bank failures should now abate
Dimon described the banking system as ‘stable’ and said that ‘this part of the crisis is over’.
But the 67-year-old billionaire admitted the banking system must still grapple with several threats, including the current rate environment.
The bank’s chief financial officer Jeremy Barnum said: ‘This is a very, very different situation from 2008.’
Barnum told analysts yesterday that JP Morgan did not pursue a deal, but was invited to take the bank over by the Government.
Regulators at the Federal Deposit Insurance Corporation (FDIC) had asked a handful of banks to stage a rescue.
JP Morgan will pay $10.6billion (£8.5billion) to the FDIC for the bank, which had amassed a market value of more than $20biliion (£16billion) at the start of 2023.
First Republic was founded in 1985 and was known for its wealthy client-base.
It was a mid-sized lender, around the same size as Silicon Valley Bank. Rising interest rates had put pressure on its business model of offering affordable mortgages to affluent customers, while its funding costs also jumped dramatically over the past couple of months.
Its demise is overshadowed only by the failure of the bank Washington Mutual in 2008, amid the global financial crisis.
However the US Treasury sought to quash concerns of a major collapse.
It said in a statement: ‘The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits.’
In a note yesterday, Wells Fargo analyst Mike Mayo predicted that the latest crisis was in the ‘home stretch’. But other analysts were more cautious.
In another note, James Fotheringham and Rufus Hone of BMO Capital Markets said: ‘This is another one-off solution to the liquidity crisis.’ The analysts warned there was a ‘reality of another bank failure’.
Shares of regional lenders fell in morning trading in the US yesterday, with the KBW Regional Banking Index dipping nearly 1 per cent.
Casualties this year bigger than fallers in financial crisis
The three US banks that have collapsed this year were larger than the 25 banks that failed at the peak of the 2008 financial crisis.
First Republic was seized by regulators yesterday while Silicon Valley Bank and Signature Bank failed in March.
The trio of lenders held $532billion (£426billion) in assets. This sum surpasses the $526billion (£421billion) held by failed banks in 2008, according to the New York Times, which adjusted the figures with inflation.
More than 500 federally insured banks failed from 2008 to 2015, mostly regional lenders.
Lehman Brothers and Bear Stearns also collapsed, as well as Washington Mutual – the largest banking casualty in US history.
JP Morgan also bought Washington Mutual when the bank collapsed with $310billion (£248billion) of assets in 2008.
Responding to a question about whether the banking sector needed to be capitalised and liquid in the same way as JP Morgan, its boss Jamie Dimon said: ‘People should be very, very thoughtful about changes.’
He said it was important that smaller banks were not restricted by rules.