CNBC's Leslie Picker reports on news from JPMorgan.
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Tag: First Republic Bank
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Why the Fed expects more bank failures
Of about 4,000 U.S. banks analyzed by the Klaros Group, 282 banks face stress from commercial real estate exposure and higher interest rates. The majority of those banks are categorized as small banks with less than $10 billion in assets. “Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, Klaros co-founder and partner at Klaros. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt.”
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Wed, May 1 202410:05 AM EDT
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2023 a mixed bag for Wall Street, U.S. economy
2023 a mixed bag for Wall Street, U.S. economy – CBS News
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JPM shares FRB integration update | Bank Automation News
Overall expenses for JPMorgan Chase increased in the second quarter as the bank focused on hiring, tech investment and its integration road map for First Republic Bank. The $3.7 trillion bank acquired First Republic Bank on May 1 after regulators stepped in to facilitate the sale of the spiraling bank. This quarter, JPMorgan Chase started […]Whitney McDonald
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First Republic employees are fleeing JPMorgan after the regional bank’s acquisition
Liz Hoffman, Semafor business and finance editor, joins ‘Squawk Box’ to discuss JPMorgan’s ambitions in the wealth management space and more.
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Senate weighs bill to strip failed bank executives of pay
A bill that would take back pay from executives whose banks fail appears likely to advance in the Senate, several months after Silicon Valley Bank’s implosion rattled the tech industry and tanked financial institutions’ stocks.
The Senate Banking Committee on Wednesday heard the bipartisan proposal, co-sponsored by Sens. Sherrod Brown (D-Ohio) and Tim Scott (R-S.C.)
Dubbed the Recovering Executive Compensation Obtained from Unaccountable Practices Act of 2023, or RECOUP Act, the bill would impose fines of up to $3 million on top bankers and bank directors after an institution collapses. It would also authorize the Federal Deposit Insurance Commission to revoke their compensation, including stock sale proceeds and bonuses, from up to two years before the bank crash.
“Shortly after the collapse of SVB, CEO Greg Becker fled to Hawaii while the American people were left holding the bag for billions,” Scott said during the hearing, adding, “these bank executives were completely derelict in their duties.”
The proposal is policymakers’ latest push to stave off a potential banking crisis months after a series of large bank failures rattled the finance industry.
In March, Democratic Sens. Elizabeth Warren of Massachusetts and Catherine Cortez-Masto of Nevada teamed up with Republican Sens. Josh Hawley of Missouri and Mike Braun of Indiana to propose the Failed Bank Executive Clawback Act. The bill — a harsher version of the RECOUP Act —would require federal regulators to claw back all or part of the compensation received by bank executives in the five years leading up to a bank’s failure.
Silicon Valley Bank fell in early March following a run on its deposits after the bank revealed major losses in its long-term bond holdings. The collapse triggered a domino effect, wiping out two regional banks — New York-based Signature Bank and California’s First Republic.
A push to penalize executives gained steam after it emerged that SVB’s CEO sold $3.6 million in the financial institution’s stock one month before its collapse. The Justice Department and the Securities and Exchange Commission are investigating the timing of those sales, the Wall Street Journal reported.
Tight grip on compensation
Recouping bank officials’ pay could prove difficult given that regulators have not changed the rules regarding clawbacks by the FDIC. Under the Dodd-Frank Act, the agency has clawback authority over the largest financial institutions only, in a limited number of special circumstances.
In a hearing before the Senate Banking Committee on Tuesday, FDIC Chair Martin Gruenberg signaled a need for legislation to claw back compensation.
“We do not have under the Federal Deposit Insurance Act explicit authority for clawback of compensation,” Gruenberg said in response to a question by Cortez-Masto. “We can get to some of that with our other authorities. We have that specific authority under Title II of the Dodd-Frank Act. If you were looking for an additional authority, specific authority under the FDI Act for clawbacks, it would probably have some value there.”
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America’s Biggest Bank Is Everywhere—and It Isn’t Done Growing
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Sen. Elizabeth Warren presses regulators for answers on First Republic takeover
Sen. Elizabeth Warren, D-Mass., greets Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, during the Senate Banking, Housing, and Urban Affairs Committee hearing in Dirksen Building on Tuesday, March 28, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
WASHINGTON — Sen. Elizabeth Warren is asking federal financial regulators for answers over what she called a “deeply troubling” deal that saw JPMorgan Chase take over First Republic Bank.
In a letter to regulators ahead of a Senate hearing on the matter, Warren highlighted that the deal, which is expected to produce a $2.6 billion gain for JPMorgan, resulted in a $13 billion loss to the FDIC’s Deposit Insurance Fund.
Warren’s letter, dated Wednesday, is addressed to Martin Gruenberg, chairman of the Federal Deposit Investment Corp., and Michael Hsu, acting comptroller of the currency, an independent division of the Treasury Department.
Both Gruenberg and Hsu will testify before the Senate Banking committee on Thursday. A spokesperson for the Office of the Comptroller of the Currency said the agency does not comment on congressional correspondence. A representative for the FDIC told CNBC that it will respond directly to Warren.
“Without a complete regulatory review, and at a cost of $13 billion to the Federal Deposit Insurance Fund, the nation’s biggest bank — already too big to fail — got a bargain deal on a failing bank that made it even bigger,” wrote Warren, D-Mass.
JPMorgan, the largest U.S. bank, acquired First Republic’s deposits and the bulk of its assets May 1 after regulators seized the bank — resulting in the biggest bank failure since the 2008 financial crisis. First Republic was seen as the weakest link in the banking system following the failures of Silicon Valley Bank and Signature Bank in March.
“Our government invited us and others to step up, and we did,” JPMorgan CEO Jamie Dimon said in a press release May 1. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
The FDIC allowed JPMorgan to take over the total package of First Republic’s assets for less than they were worth, according to Warren, a longtime critic of Wall Street. Meanwhile, the agency will bear 80% of the credit losses on the bank’s mortgages and commercial loans, she said.
She also asked questions about the process through which JPMorgan was selected from a pool of bidders.
The Massachusetts Democrat is seeking answers from Gruenberg and Hsu about whether the agency indeed resolved the bank failure at the lowest cost to the federal insurance fund, as is required by law.
The FDIC declared a systemic risk exception to avoid taking a least-cost route toward guaranteeing uninsured deposits after SVB and Signature failed, but this method was not applied to First Republic. Instead, the insurance fund was allowed to take a multibillion-dollar loss after billions of dollars worth of the bank’s uninsured deposits were rescued during the deal, Warren said.
“The FDIC appeared to prioritize First Republic’s uninsured deposits at the bank before the Insurance Fund,” she said.
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What you need to know about recent bank failures. Is your money safe?
Recent turmoil in the banking industry may have you worried about your money.
Shares of PacWest, a small regional bank based in Los Angeles, plunged almost 40% Thursday after the company confirmed it may put itself up for sale. Anxiety over potential bank runs has sent shares of smaller banks tumbling. A bank run is when large numbers of people withdraw their money from a bank all at once.
Since March, three regional banks have failed — Silicon Valley Bank, Signature Bank and First Republic Bank. If the recent bank collapses have you worried about the safety of your money, here’s what you need to know:
Is my money safe?
Yes, if your money is in a U.S. bank insured by the Federal Deposit Insurance Corp. and you have less than $250,000 there. If the bank fails, you’ll get your money back.
Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch.
Credit unions are insured by the National Credit Union Administration.
If you have over $250,000 in individual accounts at one bank, which most people don’t, the amount over $250,000 is considered uninsured and experts recommend that you move the remainder of your money to a different financial institution, said Caleb Silver, editor in chief of Investopedia, a financial media website.
If you have multiple individual accounts at the same bank, for example a savings account and certificate of deposit, those are added together and the total is insured up to $250,000. (Read on for more about how joint accounts are protected.)
Federal officials have been taking steps to make sure other banks aren’t impacted.
“People who have their money in insured accounts have nothing to worry about,” said Mark Hamrick, senior economic analyst at Bankrate.com. “Simply make sure that deposits fall within the guaranteed limits, whether it’s FDIC or the credit union equivalent.”
Customers of banks that have been sold will have access to their money from the new owner, according to the FDIC. For example, JPMorgan Chase acquired First Republic Bank when it failed earlier this week and customers are able to access all of their money from JPMorgan.
Are there red flags I should look for with my bank?
If you are worried about your bank closing in the near future, there are some things you can watch out for, according to Silver:
— If it is publicly listed, watch the stock price.
— Keep an eye on the quarterly and annual reports from your bank.
— Start a Google alert for your bank in case there are news stories about it.
You want to make sure you pay close attention to the way your bank is behaving, Silver said.
“If they’re trying to raise money through a share offering or if they’re trying to sell more stock, they might have trouble on their balance sheet,” said Silver.
Public companies, including banks, do sell shares or issue new ones for various reasons, so context matters. First Republic did so this year when the hazards it faced were well known, and it kicked off an exodus of investors and depositors.
Should I look for alternatives?
If you have more than $250,000 in your bank, there are a few things you can do:
— Open a joint account
You can protect up to $500,000 by opening a joint account with someone else, such as your spouse, said Greg McBride, chief financial analyst at Bankrate.
“A married couple can easily protect a million dollars at the same bank by each having an individual account and together having a joint account,” McBride said.
— Move to another financial institution
Moving your money to other financial institutions and having up to $250,000 in each account will ensure that your money is insured by the FDIC, McBride said.
— Do not withdraw cash
Do no withdraw cash
Despite the recent uncertainty, experts don’t recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured.
“It’s not a time to pull your money out of the bank,” Silver said.
Even people with uninsured deposits usually get nearly all of their money back.
“It takes time, but generally all depositors — both insured and uninsured — get their money back,” said Todd Phillips, a consultant and former attorney at the FDIC. “Uninsured depositors may have to wait some time, and may have to take haircut where they lose 10 to 15% of their savings, but it’s never zero.”
How long does it take for insured money to be available if a bank fails?
Historically, the FDIC says it has returned insured deposits within a few days of a bank closing. The FDIC will either provide that amount in a new account at another insured bank or issue a check.
How much money can be insured in joint accounts?
If you have a joint account, the FDIC covers each individual up to $250,000. You can have both joint and single accounts at the same bank and be insured for each.
So if a couple each has individual accounts and a joint account where they have equal withdrawal rights, they can each have up to $250,000 insured in their single accounts and up to $250,000 in their joint accounts. That means each of them will have up to $500,000 insured.
What about other investments?
Customers should take a close look at the types of investments they have in their bank to know how much of their assets are insured by the FDIC. The FDIC offers an Electronic Deposit Insurance Estimator, a tool to know how much of your money is insured per financial institution.
FDIC deposit insurance covers:
— Checking accounts
— Negotiable Order of Withdrawal (NOW) accounts
— Savings accounts
— Money Market Deposit Accounts (MMDAs)
— Certificates of Deposit (CDs)
— Cashier’s checks
— Money orders
— Other official items issued by an insured bankFDIC deposit insurance doesn’t cover:
— Stock investments
— Bond investments
— Mutual funds
— Life insurance policies?
— Annuities
— Municipal securities
— Safe deposit boxes or their contents
— U.S. Treasury bills, bonds, or notes
— Crypto assetsHow does a credit union compare to a bank?
Both credit unions and banks allow customers to open savings and checking accounts, among other financial products.
The key difference is that credit unions are not-for-profit institutions, which tends to translate into lower fees and lower balance requirements, while banks are for-profit. Sometimes it also means that it’s easier for credit union customers to be approved for loans, McBride said.
Usually, customers are allowed to join credit unions based on where they live or work.
Credit unions serve a smaller number of customers, which also allows for a more personalized experience. The tradeoff is that banks tend to have larger staff, more physical branches and newer technology.
When it comes to the safety of customer’s money, both banks and credit unions insure up to $250,000 per individual customer. While banks are insured by the FDIC, credit unions are insured by the NCUA.
“Whether at a bank or a credit union, your money is safe. There’s no need to worry about the safety or access to your money,” McBride said.
The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc.
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Apple and fintechs like Robinhood chase yield-hungry depositors as Fed rate hikes continue
Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.
With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.
Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.
However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.
Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.
Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.
Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.
The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.
Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.
Scott Olson | Getty Images
“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.
LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.
And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.
“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.
SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.
The story isn’t just about rising interest rates.
Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.
Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.
After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.
Used to be dead money
For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.
As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.
There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.
Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”
Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”
While fintechs broadly are under far less regulatory pressure than crypto companies, the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.
Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.
They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.
Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.
Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”
Apple savings account
Apple
Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.
Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.
“We started with credit,” Laplanche said. “We think that’s a better strategy.”
SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”
Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.
“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”
Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.
“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”
— CNBC’s Darla Mercado contributed to this report.
WATCH: Consumers are spending more for the same items than they were a year ago
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Bank woes mount as investors bail from regional lenders
The future of PacWest Bancorp hangs in the balance as investors pull back from regional lenders following the sudden collapse of three prominent banks in a matter of weeks.
Shares of the $44 billion bank continued to slide Thursday, tumbling 60% to an all-time low of $2.57 and with trading briefly halted due to volatility. The latest dive in the stock, which has fallen 89% this year, followed a report by Bloomberg News on Wednesday that PacWest is weighing its strategic options, including a possible sale.
In a statement issued late Wednesday, PacWest confirmed that it has “explored strategic asset sales” and has recently “been approached by several potential partners and investors.” Those talks continue, the company added.
Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion.
PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31.
“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.
The problem with interest rates
Although a range of factors have hurt regional banks, the main problem stems from the sharp increase in interest rates, which have shot up 5% since the Federal Reserve started raising the cost of borrowing in March of 2022. Higher rates increase lenders’ funding costs while also forcing them to boost the returns they offer to customers, which reduces bank profits.
At the same time, when rates were still low and money was cheap, institutions like SVB gorged on long-duration Treasury and mortgage securities. But as interest rates soared last year, the price of those bonds fell sharply, exposing the banks to potentially large losses. Some banks had to sell the investments and book the losses on their balance sheets.
Banks like SVB and First Republic were also hurt because they catered to wealthier clients with account balances exceeding the Federal Deposit Insurance Corporation’s $250,000 deposit insurance limit. Panicked customers rushed to pull their funds, causing a classic “run” on the banks.
Meanwhile, even lenders with a large share of insured deposits face the challenge of retaining customers lured by the higher rates available in money-market funds, high-yield savings accounts and other investments. Smaller and midsize banks, which also focus on issuing loans to local businesses, are also more vulnerable to the recent downturn in commercial real estate, such as malls and office parks.
The upshot for many banks: Higher costs for doing business, capital flight and mounting losses.
Other banks under pressure
Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money.
Shares of Western Alliance Bancorporation plunged 58% Thursday even as it sought to reassure investors that its financial position remains solid. The selloff came after the Financial Times reported that the $65 billion Phoenix-based bank was exploring a sale. Western Alliance denied the report, calling it “categorically false in all respects” and accusing the newspaper of allowing itself to be used by investors who bet against a company’s stock.
The bank said late Wednesday that it hasn’t experienced unusual deposit outflows amid the turbulence buffeting the banking sector, noting that its deposits have risen $1.2 billion this quarter to $48.8 billion. As of May 2, 74% of its total deposits were insured.
As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.
In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue.
Federal Reserve Chair Jerome Powell, speaking Wednesday after the central bank moved to hike its benchmark rate for a 10th consecutive time, expressed confidence in the U.S. banking industry, saying it remains “sound and resilient.”
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PacWest shares crumble as Wall Street shuns midsize banks
In what is by now a familiar pattern, the fate of another regional lender hangs in the balance as investors bail from the sector following the sudden collapse of three prominent banks in a matter of weeks.
Shares of PacWest Bancorp crumbled after the close of trading on Wednesday, diving 55% to $2.88 amid a report by Bloomberg News that the $44 billion bank is weighing its strategic options, including a possible sale. The market drop followed a 28% plunge in Los Angeles-based PacWest’s stock price the previous day.
PacWest, whose shares are down 78% over the last three months, has hired a financial adviser and is also considering a breakup or trying to raise capital, according to Bloomberg.
Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money.
As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.
In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue.
Other regional bank stock also continued to reel on Wednesday. Western Alliance sank 4% before tumbling another 29% in after-hours trading, while Comerica and Zions Bancorporation also fell sharply. The KBW regional bank index has lost 29% this year.
Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion.
PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31.
“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.
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Increased scrutiny on tech-forward banks | Bank Automation News
Tech-forward Silicon Valley Bank collapsed in March, followed two days later by Signature Bank and this week First Republic Bank. Now, all eyes are on financial institutions such as Pacific Western Bank and Western Alliance Bank. PacWest and Western Alliance have each seen sharp declines in the market over the past month, as PacWest’s stock […]Brian Stone
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PacWest and Other Regional Bank Stocks Fall Further
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Peter Orszag: JPMorgan’s cost to the FDIC was smaller than what it could’ve been
Peter Orszag, Lazard Financial Advisory CEO, joins ‘Squawk on the Street’ to discuss the fallout with the banking system, the deal between the FDIC and J.P. Morgan and what the Federal Reserve should do now.
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‘Other problems might be lurking’: Strategist is unconvinced by Jamie Dimon’s bank crisis comments
Workers are seen inside of a First Republic Bank office on May 01, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
JPMorgan Chase CEO Jamie Dimon’s assertion that recent turmoil in the banking sector was 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 assets.
First Republic’s demise marked the third of its kind among midsized banks since the sudden collapse of Silicon Valley Bank and Signature Bank in early March. This triggered a global crisis of confidence that eventually pushed Swiss stalwart Credit Suisse to the brink, prompting an emergency rescue by domestic rival UBS.
“There are only so many banks that were offsides this way,” Dimon told analysts in a call shortly after the First Republic deal was announced.
“There may be another smaller one, but this pretty much resolves them all,” Dimon said. “This part of the crisis is over.”
The recent financial instability has added another troubling consideration for central banks, which have been hiking interest rates aggressively to curb inflation, exposing some of the mismanaged positions held by certain banks that did not expect financial conditions to tighten so sharply.
The U.S. Federal Reserve will announce its latest monetary policy decision on Wednesday, and several of the central bank’s policymakers have reiterated their focus on dragging inflation back down to Earth even if it means tipping the economy into recession.
David Pierce, director of strategic initiatives at Utah-based GPS Capital Markets, told CNBC Tuesday that the financial sector’s frailties may be more profound than the messaging from bankers and policymakers suggests.
“If you listen to the political side of this, you would have them tell you that it really is a non-issue because it’s all covered through the FDIC insurance but money has to go into that and they’re insuring deposits well above what the insurance covers, and on the flipside of that you look at the deal that Jamie Dimon made, and they got a great deal in their purchase,” he told CNBC’s “Squawk Box Europe.”
The FDIC has estimated that the cost to its Deposit Insurance Fund of the First Republic collapse will be around $13 billion, considerably higher than the estimated $2.5 billion for Signature Bank but beneath the $20 billion estimate of resolving Silicon Valley Bank.
Pierce suggested that the sudden nature of the U.S. collapses and bailouts would indicate that the central bank and regulators may not have their fingers on the pulse with regards to ensuring smaller lenders have access to adequate money supply.
“It should not be happening in a vacuum like this and it makes me question a little bit why did they have to take them over and sell them over a weekend? Could they have funded them and given them additional capital, provided loans that would have gotten them through this hard time?” he said.
“Jamie Dimon comes out and says ‘this is it, this is the end of it, we’re all good now’ — I don’t think we can really say that yet, because we don’t know what other problems might be lurking, and obviously there are some things that are hidden, and a lot of this also comes down to there’s been some mismanagement of these banks.”
He added that the fallen banks have largely catered specifically to the tech sector, leaving them uniquely exposed to increases in interest rates having provided riskier loans to “pre-profit” companies.
However, recent Wall Street earnings showed that deposits in the aftermath have flowed heavily from smaller and mid-sized banks to the big, systemically large lenders, and Pierce suggested the two months of turmoil has “really reduced the capital in the marketplace, especially available to high-debt companies.”
The World Economic Forum’s Chief Economists Outlook, published Monday, showed chief economists by and large do not currently see large-scale systemic risk from the recent banking chaos, but they do think it will have some economic impact.
“Although the chief economists are broadly sanguine about the systemic implications of the recent financial disruption – 69% characterize it as isolated episodes rather than signs of systemic vulnerability – they point to potentially damaging knock-on effects,” the report said.
“These include a squeeze on the flow of credit to businesses and the prospect of significant disruption in property markets in particular.”
This assessment was echoed Monday by strategists at DBRS Morningstar.
“Overall, we expect limited immediate fallout from this failure, as the market was well aware of the issues adversely impacting First Republic Bank, who reported very weak results after the market closed on April 24th,” said John Mackerey, senior vice president of the Global Financial Institutions Group at DBRS Morningstar.
“Longer term, we expect further asset quality pressure as the rapid interest rate hikes cool the economy and negatively impact asset values, particularly in commercial real estate where retail and office properties are under pressure.”
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Fintech accelerator moved assets to First Republic in March | Bank Automation News
Fintech accelerator Expert Dojo, a former client of Silicon Valley Bank, moved some of its deposits to First Republic Bank in March to strengthen the bank’s deposits and help avoid a similar fate to SVB — which was ultimately unsuccessful. In the blog “Taking a Stand for Regional Banks: Expert Dojo Will Be Depositing Money […]Brian Stone
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How First Republic ended up as the second-largest bank takeover in history after Washington Mutual
A quick rise in interest rates, a large amount of uninsured deposits and a first-quarter update that revealed further weaknesses in its business all contributed to the demise of First Republic Bank, now the second-largest bank blowup since Washington Mutual.
As of Dec. 31, First Republic FRC was ranked as the 14th largest bank in the U.S. by the Federal Reserve with consolidated assets of nearly $213 billion. Washington Mutual had $307 billion of assets as the largest bank failure in U.S. history during the global financial…
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Video: ‘Taxpayers Are Not on the Hook’ for First Republic Collapse, Biden Says
President Biden said shareholders would lose their investments, but depositors would be protected, after federal regulators seized First Republic Bank and sold it to JPMorgan Chase.
The New York Times
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