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Businesses The Almighty Buck

JPMorgan Snaps Up First Republic's Assets in US Auction (reuters.com) 56

JPMorgan said on Monday it will buy most of First Republic Bank's assets after regulators seized the troubled lender at the weekend, marking the third failure of a major U.S. bank in two months. From a report: Under the deal, which came after an auction, JPMorgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) for most of the assets of the San Francisco-based bank, whose failure is the largest since Washington Mutual in 2008. JPMorgan, already the biggest bank in the United States, has also entered into a loss-share agreement with the FDIC on single family, residential and commercial loans it bought, but will not take First Republic Bank's corporate debt or preferred stock. The deal allows for an orderly failure of First Republic and avoids regulators having to insure all the bank's deposits, as they had to do when two others collapsed in March. First Republic disclosed last week that it had suffered more than $100 billion in outflows in the first quarter and was exploring options, increasing stress in the banking sector.
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JPMorgan Snaps Up First Republic's Assets in US Auction

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  • Illegal but so what! (Score:5, Interesting)

    by Train0987 ( 1059246 ) on Monday May 01, 2023 @08:15AM (#63488620)

    This is in direct violation of the law since JPM will now have more than 10% of all US deposits. But sure, the banking crisis is fully contained now!

    Look out below.

    • by jonathantn ( 6373084 ) on Monday May 01, 2023 @08:17AM (#63488626)
      The best way to solve a problem, is to make a bigger problem. It's the Merikan way!
    • Law is fiction. They does what they wants.
    • It's funny because JP Morgan, the actual dude [wikipedia.org], "was the driving force behind the wave of industrial consolidation in the United States spanning the late 19th and early 20th centuries... Due to the extent of his dominance over U.S. finance, Morgan exercised enormous influence over the nation's policies and the market forces underlying its economy. "

      150 years later, here we are, except Jamie Dimon is in his seat. You don't see such an enduring juggernaut in most industries. It implies that maybe something

      • by dknj ( 441802 ) on Monday May 01, 2023 @09:17AM (#63488742) Journal

        The federal reserve was created to nationalize what JPM and his rich buddies were doing at the time. Today we have made it back to that same original position except with different rich buddies. Either (a) we need to get rid of the fed and let the market collapse and restructure on its own (it will be tough i know) or (b) we eat the rich. And by eat the rich I mean they take a massive haircut on their wealth and let the Fed regain control. Of course that would start the entire 100 year collapse cycle all over again. Damned if we do damned if we don't. All because we couldn't let 2008 correct itself on its own.

        I would love to eat popcorn and watch, but I think every person reading this will feel the pain. Some way more than others

    • In direct violation of which law?

      • by dknj ( 441802 )

        Yo, yo, yo, what's the deal with JP Morgan?
        They're trying to acquire all of First Republic Bank's deposits, man!
        But hold up, wait a minute, that might be against the law
        The Bank Holding Company Act says no more than 10%, that's what we saw

        JP Morgan's been around the block, they know how to play the game
        But let's hope they're not using this move to put competitors to shame
        We gotta protect the little guy, make sure he's not left behind
        But with JP Morgan making moves like this, it's hard to keep a clear mind

        So

      • The Riegle-Neal Act of 1994 among others.

        https://13bankers.com/2010/03/... [13bankers.com]

    • Regulation, not law. Regulators have the power to make exceptions for these kinds of circumstances. The Supreme Court is not going to strike this down...
      • by Zak3056 ( 69287 ) on Monday May 01, 2023 @12:30PM (#63489216) Journal

        Regulation, not law. Regulators have the power to make exceptions for these kinds of circumstances. The Supreme Court is not going to strike this down...

        Actually... it appears that this is law and not regulation, and also that there is no discretion. 12 USC 1842 (2) (A) [cornell.edu] reads:

        The Board may not approve an application pursuant to paragraph (1)(A) if the applicant (including all insured depository institutions which are affiliates of the applicant) controls, or upon consummation of the acquisition for which such application is filed would control, more than 10 percent of the total amount of deposits of insured depository institutions in the United States.

        I'm as surprised as you are, here.

        • by ceoyoyo ( 59147 )

          The Board may not approve an application pursuant to paragraph (1)(A) if the applicant (including all insured depository institutions which are affiliates of the applicant) controls, or upon consummation of the acquisition for which such application is filed would control, more than 10 percent of the total amount of deposits of insured depository institutions in the United States.

          I suspect that the US federal reserve is familiar with banking law, including all the little bits at the ends of those long sente

          • I suspect they called up their friends at the OCC (https://occ.treas.gov) to get a preliminary ruling. The Fed has proven that they can bend and twist the rules to achieve a goal (cf actions of March 2020 where they became buyer of last resort instead of just lender of last resort).
        • Powell addressed this just now. He mentioned there's an exception to the 10% rule for failing banks.
    • by chill ( 34294 )

      Which law is that? Because JPMorgan-Chase had $2.4 trillion in deposits [usbanklocations.com] against total US deposits [stlouisfed.org] of $17.1 trillion, which is approximately 14% BEFORE absorbing First Republic's $176 billion. I'm really interested in which law in the US limits the size of a commercial, private-sector bank as I'm not familiar with it.

      • by chill ( 34294 )

        Correction to one of the links above. Due to the massive bank run against First Republic in the last couple of weeks, they only had $97 billion in deposits at the time of acquisition, and not the $176 billion I quoted above.

      • Originally it was illegal for any one bank to hold more than 10% of deposits. Then it was finessed to allow exceeding 10% due to organic growth and prohibit acquisitions which would exceed 10%. That's what this is. Better explanation here: https://13bankers.com/2010/03/... [13bankers.com]

        • by chill ( 34294 ) on Monday May 01, 2023 @10:07AM (#63488858) Journal

          Thank you.

          There is an explicit exception for a bank in danger of default.

          (5) Exception for banks in default or in danger of default
          The Board may approve an application pursuant to paragraph (1)(A) which involves --
          (A) an acquisition of 1 or more banks in default or in danger of default; or
          (B) an acquisition with respect to which assistance is provided under section 1823(c) of this title;
          without regard to subparagraph (B) or (D) of paragraph (1) or paragraph (2) or (3).

          See: https://www.law.cornell.edu/uscode/text/12/1842 [cornell.edu]

  • by DarkOx ( 621550 ) on Monday May 01, 2023 @08:19AM (#63488634) Journal

    The government / FDICs entire approach to these premierships is wrong.

    They always look for some bigger bank to essentially take over the deposit operations of the failed bank. Cynically I think certain people in leadership want an environment where there on only a few big financial institutions or maybe just the FED. However if we assume this strategy isnt a larger plot to eliminate the commercial banking sector, and its just convenient in terms of them being structurally and infrastructural able to do it - it still sets up the scenario where eventually there are only TBTFs and anyone smaller is disadvantaged in the market place because the perception exists going with them means a disruptive process down the line where you are potentially rolled into a TBTF.

    FDIC/Treasury/FED really needs to setup some temporary retail banking services ( a reusable system where they can provide them ) that allow people immediate access to the insured portions of their accounts when receivership is entered. They need to put a lot more effort into breaking up the institutions assets, including customers/book-of-business and deposit accounts into a large number of institutions, not just megabanks, even if it takes more time.

    • by pete6677 ( 681676 ) on Monday May 01, 2023 @08:26AM (#63488644)

      That's the modern day approach to everything. Eliminate small business entirely, phase out small-medium sized companies, and consolidate everything to just a hand full of large businesses! It's a lot easier to control people that way.

      • It's not just control, it's manageability. It's a lot easier to deal with just a small number of dictators.

    • It's actually worse. JPM is taking on the assets and loans that still have a possibility for profit and the gov't (i.e. taxpayer) is taking all the toxic crap.

      • It's actually worse. JPM is taking on the assets and loans that still have a possibility for profit and the gov't (i.e. taxpayer) is taking all the toxic crap.

        Yet another round of privatize the profit and socialize the losses. What an absolute clusterfuck our government is now. They don't even try to hide the end-goal anymore. It's just flat out, "fuck the little guy, big guys need help."

        • The FDIC is funded by a levy on all banks, rather than the taxpayer directly.

          Given the inherent instability of the banking sector - borrow short, lend long - and the need for a private banking sector, because expecting bureaucrats to lend with enough risk to ensure economic growth, the present approach is probably as good as it gets.

    • by Ed Tice ( 3732157 ) on Monday May 01, 2023 @08:28AM (#63488648)
      I agree with you that the policy is clearly outdated but I'm not convinced it's nefarious. The FDIC has good reasons for wanting to sell banks as a whole rather than piece-by-piece. It can be hard to sell the individual assets for various reasons. Therefore a wholesale purchase by a larger bank makes sense.

      The policies were envisioned prior to TBTFs and should be revised. Also, at some point, a TBTF will have to fail.

      Financing banks through consumer deposits doesn't really make sense anymore. Too much money can move too quickly.

      The other problem is that financial services are just too large a part of the US economy. Extreme leverage and creative financing makes entire businesses possible but also makes them fragile. Look at commercial real estate where loans are made for 7 years but amortized over 30. Even profitable commercial real estate ventures can fail due to lack of financing. These should be 7/1 ARMs like residential mortgages. Sure that would make commercial real estate less profitable in the good times. But it would also eliminate a lot of boom/bust.

      • Absolute dross.

        The exact same thing happened with the S&L Crisis, which directly lead to the RTC Scandal; selling back the same properties that caused this mess for pennies on the dollar.The defacto case of privatize the profits, socialize the loss.

        Analysis afterwards put the lack of bidding for the distressed properties as costing more than the S&L Crisis in lost revenue.

        How many more of these before it's no longer a matter of convenience but by design?

      • not on the part of the FCC.

        It's supposed to be a last resort, but we've deregulated so much we've got a ton of banks teetering on the edge. Meanwhile the Chair Of the Federal Reserve is actively trying to crash the economy (he says for inflation control, but inflation is driven by mega mergers and price gouging so....).

        But it's mostly an "only tool's a hammer". We're using the wrong tool for the job. We need to put Dodd-Frank back in place. It's provisions were repealed on a piece by piece basis (le
    • Maybe the big banks are the right ones to take on failing banks, but we need to figure out why there are too few startup banks to maintain a steady or growing total number of banks over time.

      The market is teeming with lesser forms - BNPL, payday loans, title loans, pawn shops, everybody including paypal and Apple [cnbc.com] has been getting in to this stuff. But not founding "banks." Why?

      • I remember a time when you could get a reasonable short-term loan with a big bank, if you needed a few bucks before payday. Those were the good ole days. Now, it seems TPTB want us to go for broke. Payday loan interest rates are the devil's handiwork.
      • by DarkOx ( 621550 )

        Well I think the answer there is pretty obvious.

        There is money to be made offering those services

        People are willing to use those services even when offered by a non-bank entity

        Being regulated as a bank, is complicated so complicated that you probably can't do without having people experienced in banking on staff and in leadership. So founder lead startups have a tough time going that route.

        Honestly 'deregulating' banking save for saying if you take deposits you MUST be FDIC insured might be an approach. How

        • This is the huge question. Conservatives see monopoly and blame over-regulation for stifling competition. Liberals see monopoly and blame under-regulation for allowing the monopoly to run rampant.
    • by kalpol ( 714519 )
      It's also weird because the bank was still solvent by FDIC standards. The State of California actually forced the sale.Same thing happened to Signature in New York.
      • "the bank was still solvent by FDIC standards."

        That's because FDIC doesn't force banks to mark Treasury securities to market. But when everybody wants their deposits back and you can only sell your Treasuries for sixty cents on the dollar because the interest rates have gone up and nobody will pay book value for your low-interest Treasuries, you're broke no matter what the FDIC says.

        • by chill ( 34294 )

          Actually it is because the FDIC is a Supervisor, not a Regulator. Regulators make the rules, Supervisors oversee and enforce them.

          The Federal Reserve Board of Governors (FRB) is the primary federal regulator. The 12 regional Federal Reserve Banks, the FDIC, and Office of the Comptroller of the Currency (OCC) are the primary federal financial supervisors. Most banks, by branch count, are regulated primarily by their State dept of financial regulation.

          See the sidebar here: https://www.stlouisfed.org/in-plain- [stlouisfed.org]

    • by chill ( 34294 )

      FDIC/Treasury/FED really needs to setup some temporary retail banking services ( a reusable system where they can provide them ) that allow people immediate access to the insured portions of their accounts when receivership is entered.

      That's exactly what they did with Silicon Valley Bank. The closure of SVB was on a Monday and the former branches were open, being run under the guidance of the Fed, on Tuesday so people could get their insured deposits. That only lasted a short time as they arranged a sale of the bank in a couple of days.

      The Fed isn't in the retail banking business, and can't do what you're asking because they're not the primary regulator of most banks. Both SVB and First Republic are regulated by the State of California D

      • by DarkOx ( 621550 )

        That is what I mean though. When the regulators take these banks on, they need a process where its not a hard requirement to shutter the banks in a few days and don't need to relay on the bank's customer service organization to continue to function.

        The mega-bank-mergers are done because they can be done fast. We need a process that allows much more division of assets and an orderly sell off to a larger number of bidders, who may be to small to take the entire organization or even major divisions of it on b

        • by chill ( 34294 ) on Monday May 01, 2023 @09:28AM (#63488770) Journal

          A lot of branch banking is built on relationships. You're implying just firing all of those people and replacing them with gov't workers. That's not gonna fly.

          The problem is bank stability is perception. It is faith. First Republic was in trouble because people started to perceive it was in trouble and took their money out. They lost faith. Having the gov't take over and take its sweet time to resolve everything isn't going to give faith to people. The assets they're trying to divvy up will lose value by the day until there is almost nothing left to actually sell except tangible property (buildings, desks, etc.)

          And how would you expect smaller banks to cover uninsured deposit accounts? They don't have the capital themselves. The idea is to give faith to the depositers that their money is still there. A big bank with tons of resouces gives that. Move those accounts to a smaller bank and I guarantee you'll see another bank run as fast as the Tweet twits as people withdraw their cash.

    • we need to put the regulations back in place that Trump, Clinton and Reagan repealed.

      We put a bit of the ones Clinton repealed back in place (and it's debatable if he would have repealed it if he wasn't facing a veto proof majority) but Trump... well he didn't technically repeal the laws (which I'm sure some stan of his will point out), instead he signed laws removing all their provisions. So the laws are there, but just a skeleton with no muscle to move. That way we didn't get headlines like "Trump re
  • Nothing to see here. No more skeletons in this closet. None at all. Nuh-uh.
  • "When it was just SVB, it was easy to blame management. However, now that we see the pattern it is evident that the Fed has moved too far, too fast and is breaking things," said Thomas J. Hayes, Chairman and Managing Member, Great Hill Capital.

    Cute quote. The issue is these large banks bribed^H^H^H^H^H^H donated large amounts to US politicians to pretty much eliminate almost all regulations, not what the fed is doing. So you want to see who is responsible, look in your mirror.

    Whatever happened to shrinking "Banks too big to fail" after 2008 ? Wait, politicians were paid off, that is what happened.

    • Jerome Powell and his buddies made many (if not all) US banks subject to collapse in the face of a run. The Fed, by pushing interest rates to multiples of the returns on safe investments that banks commonly invest in, created a situation where the banks could not provide liquidity from these investments without taking huge losses. The banks that are hit the hardest are those that have many rich clients and businesses with balances over $100k. Once a little fear got into the system, businesses and wealthy
      • How the heck is this on the Fed? Are banks entitled to a profit? Part of running/managing a bank is to understand interest rate risk and to plan accordingly. I guess it's the sun's fault that my business failed since it insists on rising in the East and that totally messed up my plan.
        • This is not the work of a smooth hand: https://www.macrotrends.net/20... [macrotrends.net] . The Fed knew or should have known that the investments of most banks were in historically low yield "safe" instruments. The Fed raised the rates from 0.8% on Feb 28 2022 to the current 4.83% in little over a year. That was simply too fast when the banks are holding 1 to 3 year bonds that are paying something like 1% and are now worth 2-3% less than face value. They changed the playing field at record rates which I doubt anyone e
          • The job of the fed is *not* to ensure that banks make profits. The fed's mandate is "full employment and stable prices." The banks knew or should have known that their investments were in historically low yield "safe" instruments. And the fed actually subsidizes banks who are affected by the interest rates. They can deposit those securities at the fed and get an interest rate higher than the underlying bond pays! It's not the job of the fed to manage banks. It's the job of banks to manage themselves.
    • The bought long dated government stock with a slightly higher interest rate rather than short dated with a lower interest rate. This meant that when interest rates were raised, the value of those long dated stocks was cut substantially, leaving a deficit in the bank's theoretical value. The mistake lay in regulations that allowed that error by the management. But it's sheer partisanship to want to suggest those who want less regulations are to blame.

      • I made the same mistake in one of my IRAs. I have a good 20% paper loss. Fortunately I can hold to maturity since I'm investing my own money.
      • The bought long dated government stock with a slightly higher interest rate rather than short dated with a lower interest rate. This meant that when interest rates were raised, the value of those long dated stocks was cut substantially, leaving a deficit in the bank's theoretical value.

        If I buy a seven year bond that will pay me 7%, and the fed then issues seven year bonds that pay 7.25%, that doesn't affect my return one damn bit. I'll still get my 7%. My bond hasn't lost any "value" at all. The problem is that banks are allowed to wheel and deal. My bond "loses value" not for me but only for the banker who is using my bond as collateral for *their* investment machinations. They get the almost completely risk-free use of that bond to make substantial market plays; some quite risky. So, i

        • You're missing the point. Banks borrow short - all that money in current accounts and savings accounts that instantly available for account holders to access. But they lend long - mortgages and loans to companies that can't be repaid immediately. So if all the account holders demand their money back, they will go bankrupt; not because they've done anything wrong, but because banks are inherently unstable, but do a valuable job.

          To provide a cushion against losses and to allow a reasonable degree of stability

    • A basic part of managing a bank is to know that the federal reserve raises rates periodically based on economic conditions. Not taking this into account is an epic failure of bank management
  • were all buddy buddy with the banks c-suite. But no harm, no one the they care about lost anything. So the corrupt regulators and the bank c-suite walks away with their pockets full of cash, it is a win-win for them. Rinse and repeat, rinse and repeat.
    • Yeah, I'm not so sure. What happened to FR's shareholders? What about their bondholders? Meanwhile, the costs presumably come from FDIC fees paid by other banks, so not exactly the taxpayer, but essentially a tax on other depositors.

  • by KILNA ( 536949 ) on Monday May 01, 2023 @05:05PM (#63489892) Journal
    The end state of all capitalism is the smallest number of people in control of the largest number of resources. It is based on a cornerstone, that as size increases, so does the need for opposition to competition and control in order to maintain or increase size. Anyone that tells you capitalism is about competition or free markets is lying to you, it is about hoarding resources into the fewest hands. It is oligarchy. Any illusion of fairness is temporary, and exists solely to bide time for consolidation, to eventually subsume any control structure, corrupt any market freedom, and externalize risk onto those who don't belong to the ownership class.

Your own mileage may vary.

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