Global Courant 2023-05-02 15:20:24
Employees are seen in an office of the First Republic Bank on May 1, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
JPMorgan Chase CEO Jamie Dimon’s claim that the recent banking industry turmoil has been effectively ended by the resolution of First Republic may be premature, one analyst suggested.
The Wall Street giant won a weekend auction for the embattled regional lender after it was seized by the California Department of Financial Protection and Innovation, and will acquire nearly all of its deposits and a majority of its assets.
First Republic’s demise was the third of its kind among medium-sized banks since the sudden collapse of Silicon Valley Bank and Signature Bank in early March. This created a global crisis of confidence that ultimately pushed Swiss stalwart Credit Suisse to the brink, leading to an emergency bailout by domestic rival UBS.
“There are only a limited number of banks that have been sidelined in this way,” Dimon told analysts in a phone call shortly after the First Republic deal was announced.
“There might be another smaller one, but this pretty much fixes them all,” Dimon said. “This part of the crisis is over.”
Recent financial instability has added another worrying consideration for central banks, which have aggressively raised interest rates to curb inflation, exposing some of the mismanaged positions of certain banks that had not expected financial conditions to turn so sharply. would tighten.
The US Federal Reserve will announce its final monetary policy decision on Wednesday, and several central bank policymakers have reiterated their focus on bringing inflation back to earth, even if it means sending the economy into recession.
David Pierce, director of strategic initiatives at Utah-based GPS Capital Markets, told CNBC Tuesday that the financial sector’s weaknesses may be greater than reports from bankers and policymakers suggest.
“If you listen to the political side of this you’d let them tell you it’s really not a big deal because it’s all covered by FDIC insurance, but money has to go in there and they insure deposits well above what the insurance coverage, and on the flip side you look at the deal that Jamie Dimon made, and they got a lot with their purchase,” he told CNBC’s “Squawk Box Europe.”
The FDIC has estimated that the cost of collapsing the First Republic Deposit Insurance Fund will be approximately $13 billion, significantly higher than Signature Bank’s estimated $2.5 billion but below the $20 billion estimate for resolving Silicon Valley Bank.
Pierce suggested that the sudden nature of the US collapse and bailouts would indicate that the central bank and regulators may not be keeping a finger on the pulse to ensure that smaller lenders have access to enough money.
“It shouldn’t happen in a vacuum like this and I kind of wonder why they had to take them over and sell them in a weekend. Could they have financed them and given them extra capital, by making loans you got them help you through this difficult time?” he said.
“Jamie Dimon comes out and says ‘this is it, this is the end, we’re all good now’ – I don’t think we can really say that yet because we don’t know what other problems could be lurking. lie, and of course there are some things that are hidden, and a lot of this also comes down to mismanagement of these banks.”
He added that the fallen banks have largely focused specifically on the technology sector, which has given them unique exposure to interest rate hikes by making riskier loans to for-profit companies.
However, recent Wall Street earnings showed that deposits have flowed heavily from smaller and medium-sized banks to the big, system-sized lenders in the aftermath, and Pierce suggested that the two months of turmoil “has reduced the capital in the market, especially available to high-risk companies.” debts.”
The World Economic Forum’s Chief Economists Outlook, released Monday, showed that chief economists generally don’t currently see large-scale systemic risks from the recent banking chaos, but they do think it will have some economic impact.
“While chief economists are generally optimistic about the systemic implications of the recent financial disruption – 69% characterize it as isolated episodes rather than signs of systemic fragility – they point to potentially damaging knock-on effects,” the report said.
“These include pressure on the flow of credit to businesses and the prospect of significant disruption, especially in real estate markets.”
This assessment was echoed by DBRS Morningstar strategists on Monday.
“In general, we expect limited immediate impact from this bankruptcy as the market was well aware of the issues that negatively impacted First Republic Bank, which reported very weak results following the market close on April 24,” said John Mackerey, senior vice president of the Global Financial Institutions Group at DBRS Morningstar.
“Longer term, we expect further pressure on asset quality as rapid rate hikes cool the economy and negatively impact asset values, particularly in commercial real estate where retail and office are under pressure.”
