The US banking sector seemed to assimilate well the fall of the third victim of the banking crisis: this Sunday the First Republic Bank, an institution that was previously rescued with a loan from 11 banking institutions for 30 billion dollars, could not take it anymore and had to seized and immediately sold to the highest bidder, which turned out to be JP Morgan.
JP Morgan will pay the US Federal Deposit Insurance Corporation (FDIC) 10.6 billion dollars to take control of most of the bank’s assets. But investors remain nervous about the health of the banking system after the collapse of two other regional lenders in March, and they are not sure if this case, that of the First Republic Bank, is the last episode of the banking crisis, something else could emerge. sometime.
the beginning of everything
The regional bank Silicon Valley Bank announced its bankruptcy 53 days ago, a few hours later it dragged down Signature Bank, another US entity; but the crisis at some point threatened to become global when days later Credit Suisse fell victim to uncertainty and had to be sold to its archrival UBS in a historic operation by the Swiss government, which within hours included regulatory changes to prevent the sale was hampered and with it the banking system in the country collapsed.
A little later, the markets also turned their sights on Deutsche Bank, although in this case speculation cooled down given the solidity of this group’s finances and warnings from the German government that it would not allow anything against the company. institution.
So this weekend the First Republic Bank became the third liquidation of the American banking systema hard blow for regional banks and proof that the markets do not forgive.
The bank managed to avoid a scandalous bankruptcy like that of the other two institutions, but it could not avoid the final collapse, it was impossible before the accumulation of evidence of its inviability.
The history of this bankruptcy was brief but intense, last Thursday the institution announced that it would put assets for sale for at least 100 billion dollarswas reason enough to demonstrate to the market its vulnerability and infeasibility, at least in the short term.
The punishment was immediate, the stock fell an accumulated 40 percent in just two days, and the flight of capital continued, the bank was already on the brink of the precipice and this same weekend the US authorities intervened for the second time in less than two months and on days off, to take the bank’s assets and sell them to the highest bidder, taking advantage of the low financial activity due to the May 1 holiday and before the markets opened on Tuesday with an intense selling wave that would shake the rest of the indicators.
The failure of Silicon Valley Bank was the beginning of it all, although in reality several factors have accumulated.
Who’s next?
Markets and investors generally expect to cross the Fed border; that is, the meeting and decision of monetary policy, scheduled for May 2 and 3to wait for his decision and based on it make decisions.
For now there is almost a consensus that the Fed will raise its benchmark rate by 25 basis points, which currently sits in a range of 4.75 to 5.00 percent.
The increase is likely to be 25 basis points to a level between 5 and 5.25 percent.
But a lot will depend on the situation of the markets. and especially the US banking sector which has so far managed to contain the storm.
But, the markets are now looking at some banks or institutions that are directly comparable to the recently collapsed First Republic Bank.
The Citizens and PNC institutions suffered major collapses this Mondayalmost 7 percent in both cases, contained only by the interest that investors have in the Fed’s decision and the fact that, in reality, it was a session of low operation and only in the electronic markets before the holiday of 1 May globally.
Citizens Bank is an almost bicentennial institution with $187 billion in assets, ranked 16th in the United States, and belongs to the Citizens Financial Group.
The bank is headquartered in Providence, Rhode Island and offers a wide variety of banking services for individuals, public institutions, SMEs and large companies.
The history of the Citizens Bank has its origin in the High Street Bank, founded in 1828. This entity would become the Citizens Savings Bank in 1871.
For its part, PNC Bank is the product of the merger of two well-known Pennsylvania banks in 1983, Pittsburgh National Corporation and Provident National Corporation, based in Philadelphia. Each of these institutions had served different markets, and the merger that created PNC also created the largest bank in Pennsylvania.
It belongs to the PNC Financial Services group, one of the most diversified and largest in the United States, with assets of 557 billion dollars as of December 31, 2022.
These two banks could be in the eye of the hurricane in the next few hours, as soon as the Fed decides what it will do with the reference rate.
As warned a few weeks ago by Warren Buffett, among others: the banking crisis is far from over.
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