Workers are seen inside the offices of First Republic Bank on May 1, 2023 in San Francisco, California.
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JPMorgan Chase CEO Jamie Dimon affirmed that the recent turmoil in the banking sector was effectively ended by the resolution of First Republic may be too soon, one analyst suggested.
The Wall Street giant wins weekend auction to lenders in a troubled area after being seized by the California Department of Financial Protection and Innovation, and will obtain nearly all of their deposits and most of their assets.
The collapse of First Republic marks the third collapse of its kind among midsize banks since the sudden collapse of Silicon Valley Bank and Signature Bank in early March. This caused a global crisis of confidence that eventually pushed Switzerland’s resilient Credit Suisse to the brinkremind one emergency rescue by domestic rival UBS.
“There are only so many banks that are offside this way,” Dimon told analysts on a call shortly after the First Republic deal was announced.
“There might be another smaller one, but this pretty much solves it all,” says Dimon. “This part of the crisis is over.”
Recent financial turmoil has added another worrisome consideration to central banks, which have aggressively raised interest rates to curb inflation, exposing some mismanagement. Some banks did not expect financial conditions to tighten so sharply.
The US Federal Reserve will announce its latest monetary policy decision on Wednesday, and several central bank policymakers have reiterated their focus on pulling inflation back to Earth even if it does. That means pushing the economy into recession.
David Pierce, director of strategic initiatives at Utah-based GPS Capital Markets, told CNBC on Tuesday that the financial sector’s weaknesses could be deeper than messages from banks and planners. policy recommendations.
“If you listen to the political side of this, you’d ask them to tell you it’s really not a problem because it’s all insured by the FDIC but the money has to be poured into it and they’re deposit insurance is higher than it should be. insurance, and on the other hand, you look at the deal that Jamie Dimon did, and they got a lot of money on the purchase,” he told “Squawk Box Europe.” by CNBC.
The FDIC has estimated that the cost of the collapse of the First Republic Deposit Insurance Fund will be about $13 billion, significantly higher than the $2.5 billion estimate for Signature Bank but less than the estimated $20 billion to settle Silicon Valley Bank.
Pierce suggests that the abrupt nature of the U.S. collapse and bailouts will indicate that central banks and regulators may not have caught the pulse involved in ensuring those Smaller lenders have access to an adequate money supply.
“That shouldn’t be happening in a vacuum like this and it makes me a little wonder why they have to take over and sell them in a weekend? Can they fund and raise more capital? for them, on the condition that the loans will help them through this difficult time?” he say.
“Jamie Dimon came out and said ‘that’s it, it’s over, we’re fine now’ — I don’t think we can really say that, because we don’t know what other problems could be. There’s been something lurking about, and obviously there’s been some concealment, and a lot of this also stems from the mismanagement of these banks.”
He added that the failing banks cater primarily to the tech sector, leaving them exposed to interest rate hikes by offering riskier loans to “profit-first” companies.
However, recent Wall Street earnings show that deposits have since flowed heavily from small and medium-sized banks to large, systemic banks, and Pierce thinks the tumultuous two months have “really reduces capital in the market, especially available capital”. for companies with high debt.”
The World Economic Forum’s outlook for chief economists, released Monday, shows that chief economists generally do not currently see large-scale systemic risk from the recent banking turmoil. , but they think it will have some economic impact.
“While chief economists are generally optimistic about the systemic effects of recent financial disruptions – 69 per cent see them as individual periods rather than signs,” the report said. signals of systemic vulnerability – but they point to potentially devastating knock-on effects.”
“These include the tightening of credit flows to businesses and in particular the potential for significant disruption in the real estate market.”
This assessment was echoed on Monday by strategists at DBRS Morningstar.
“Overall, we expect this failure to have limited immediate consequences, as markets are already well aware of the issues affecting them,” said John Mackerey, senior vice president at First Republic Bank. Bad for First Republic Bank, which reported very weak results after the market close on April 24.” The Global Financial Institutions Team at DBRS Morningstar.
“In the long term, we believe that the pressure on asset quality will increase when interest rates rise rapidly, cooling down the economy and negatively impacting asset values, especially commercial real estate where Retail and office properties are under pressure.”
