After a collapse of the SVB and Silvergate in the US as well as a forced takeover of Credit Suisse by the UBS, the time has come for the Frist Republic Bank. Is the Bank the last domino to fall? Here’s the summary:
- The FBR was among the top regional banks troubled by the “mini” banking crisis in the US
- The Bank was the 14th largest US bank by deposits
- A deterioration of asset quality and deposit flight saw the bank on the brink of a collapse
- FDIC intervened on Friday and sold most of the FRB balance sheet to JP Morgan in a major deal
- JPM shares gain in the premarket while FRB shares crater further
- FRB shareholders might end up with nothing
The FRB was already under pressure in March but the Fed’s liquidity programs helped the Bank stay alive for a while longer. However, Q1 report release last week exposed a major flight of depositors out of the Bank and it became clear that the FDIC takeover would be necessary. The regulator had 6 banks bidding up and eventually the JP Morgan turned out to be the winner. Here are the details of the deal that we know at the moment:
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Create account Try a demo Download mobile app Download mobile app- JPM takes over all the deposits, so there’s no issue of losses on uninsured depositors
- The largest US banks also takes over $173 billion of loans and $30 billion of securities
- There’s a “loss sharing agreement” on part of the assets (mitigating potential losses for the JPM)
- JPM is not assuming FRB corporate debt or preferred stock
- FRB branches are about to open normally on Monday under the control of JPM retail business
What does it mean for the JPM stock?
- The Bank expects to realize a one off gain of $2.6 billion and a $2 billion loss over time
- The Bank sees additional annual profits of about $500 million
- The Bank sees no issues with capital ratios after the takeover
JPM shares have recovered from the “banking crisis” and are about to test the resistance zone.
What does it mean for the FRB stock?
- The Bank no longer exists, shareholders could be hoping for some kind of residual value to be left to them
- A complete common equity erase cannot be ruled out
- The stock is likely to be delisted
The FRB stock keeps tanking as the share might end up being worthless.
What does it mean for the broader market?
- If the FRB is the last to fall, the Fed might not need to be constrained by the issue when it considers interest rates
- A takeover might decrease the need for emergency tools, thus reducing outstanding market liquidity
- A demise of regional banks might reduce lending in certain sectors of the economy (especially start ups) and lead to a deeper recession
