2023-05-01 16:39:16
Published on :
It is ultimately the largest bank in the United States, JP Morgan, which will buy most of First Republic, the American regional bank in difficulty. The speed with which the regulator acted shows that it wants to avoid panic among depositors at all costs.
The contagion effect has been avoided, seems to say the powerful agency that guarantees bank deposits in the United States, the Federal Deposit Insurance Corporation (FDIC). To facilitate the takeover of the bank by JP Morgan, the agency made an exception that the law allows in the case of a bankrupt bank.
This weekend, First Republic was placed by the FDIC at auction. JP Morgan has acquired it. The bank bought most of First Republic. That’s $173 billion in loans and about $30 billion in securities.
The San Francisco bank was under pressure since the failures of two other establishments with a similar profile: Silicon Valley Bank and Signature. In just two months, First Republic saw its stock lose more than 97% on the stock market.
The rescue plan for eleven major American banks was not enough to reassure customers. They withdrew a total of some $100 billion in deposits in the first quarter. His action, already in bad shape, nose dive. To put out the fire, the regulator therefore accepted JP Morgan’s offer. Hoping to close the episode of the banking crisis.
It is the second biggest bank failure in the history of the United States after that of Washington Mutual en 2008. The assets of the latter had also been largely acquired by JPMorgan which, under the leadership of its boss Jamie Dimon, has several times rescued institutions in difficulty.
Under Monday’s deal, the country’s biggest bank will recover all of First Republic’s deposits and nearly all of its assets, while its branches can reopen on Monday as usual.
Stabilize the system
First Republic, founded in 1985 and based in San Francisco, was only worth $654 million on the stock market on Friday, compared to more than $20 billion at the start of the year. She was known to have a wealthy clientele, depositing large sums into accounts and repaying loans well. But many of them took fright after the bankruptcies of SVB and Signature. And it had in its accounts a number of real estate loans and investments at fixed rates, which mechanically lost value with the recent rise in interest rates.
Observers were worried about a risk of contagion after the failures of March, which also created turmoil across the Atlantic and accelerated the fall of Credit Suisse. These fears have eased somewhat after the publication in the past two weeks by several small and medium-sized banks of solid financial statements.
« First Republic was identified as a problem bank in mid-March and the announcement of its closure is not a new reason for concern “, had estimated Nicolas Veron, economist for the centers of reflection PIIE and Bruegel, before the formalization of the bankruptcy.
The action of JP Morgan climbed 5% in electronic trading on Wall Street. That of First Republic fell by 35%. ” We were not looking for this agreement, but it has financial advantages and allows us to strengthen ourselves in the market “, in particular in the management of heritage, underlined, Monday, May 1, the financial director of JPMorgan, Jeremy Barnum.
(And with AFP)
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