Again on the weekend. At night. With state mediation. And almost without making noise to prevent customers from going en masse to the branches this Monday to withdraw their savings from an entity about to fall into the precipice. The United States has finally managed to make it JP Morgan, the largest bank in the country, in charge of taking over the assets of First Republic Bank, the medium-sized Californian entity that was going through a serious crisis of confidence since the financial crisis of March after months from problems. Two months ago, that situation forced the float to be cast to save two other entities, Silicon Valley and Signature Bank.
In these three months, the world’s leading economy has seen how three of its medium-sized banks -none of them are systemic, since First Republic is ranked 14th in the financial ranking- have fallen. In this particular case, by oversizing their business when interest rates were at their lowest, in mortgages with very low costs that now they have to face a much higher price of money.
In addition, he had seen how in recent weeks there have been two groups interested in taking over his activity. Interested from a broad point of view of the term, since it has been the North American authorities that have urged a banking group to buy the entity to avoid a crisis that would spread to the system the unprecedented shock wave since the bankruptcy of Lehman Brothers ( the cursed term for the financial world), back in 2008.
The agreement has come at the last minute thanks mainly to the flexibility that the US authorities have allowed, bordering on the legislation itself. Theoretically, the country’s regulations would have prevented a bank like JP Morgan from controlling more than 10% of the deposits in the entire US under normal conditions. But given the seriousness of the events and given the possibility of contagion, the authorities have made the a blind eye with this stop for ease of operation.
JP Morgan, now strengthened as the country’s leading entity, was one of several interested buyers; among others were PNC Financial Services Group and Citizens Financial Group. All submitted bids in an auction run by US regulators. The agreement by First Republic supposes the disappearance of the entity. His accounts have been acquired by JP Morgan, with assets of 173,000 million in loans and 30,000 in securities. The group does not assume corporate debt or preferred shares. “The Government has asked us to step forward and we have done so,” clarified Jamie Dimon, executive director of the entity. He is an old acquaintance in American finance, skilled as few executives are at taking on troubled banks. In 2008 he already acquired Ben Stearns for more than 200 million dollars. His resume is littered with financial devours. Now with First Republic’s, he admits that his financial strength, “capacity” and business model have allowed them to “make an offer to execute the transaction in a way that minimizes costs to the insurance fund.” deposits’.
The decline of the First Republic had intensified in recent days. The Californian bank had fallen 97% on the stock market since the outbreak of the financial storm in March. Most of that pullback had occurred in the last week of April. In just one quarter, it has lost 102,000 million.
Following this agreement, all First Republic depositors, including those with savings above $250,000 (the deposit guarantee limit established in the US) had their money insured when the bankrupt bank’s 84 branches opened yesterday under a new brand. There were no problems on the street or on the Stock Market, where JP Morgan’s shares appreciated strongly. The group estimates that it will incur $2 billion in restructuring costs over the next 18 months and expects a profit of $2.6 billion. And the US avoids a public bailout on another Monday.
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