JP Morgan takes over California’s First Republic bank for a bargain. Financial giant JP Morgan has taken advantage of the banking crisis plaguing the United States to buy San Francisco-based First Republic Bank for just $10 billion.. The operation has been closed after the authorities intervened in the entity, which was on the verge of bankruptcy due to its bad investments. What does this mean for the banking system as a whole?
First Republic is the third bank to fail this year in the US, after Silicon Valley Bank and Signature Bank, and the largest to date. Its more than two million clients will now become depositors of JP Morgan, the largest bank in the US. The purchase of First Republic by JP Morgan is one more example of the restructuring that the US banking sector is undergoing, marked by concentration. While the largest banks grow stronger and gain market share, the smaller and more vulnerable banks are forced to seek alliances or go out of business. Apparently, the future of the financial system will depend on the capacity for adaptation and innovation of the entities that make it up. Everything seems to indicate that the size in this case does matter.
The purchase has been possible thanks to the intervention of the deposit guarantee fund (FDIC), which will bear part of the losses and risks of the First Republic credit portfolio. The FDIC estimates that the bailout will cost about $11.8 billion, while JP Morgan expects to earn an additional net profit of more than $500 million a year from the acquisition. All round business. Apparently being the hero, while necessary, (in this case) is also profitable.
JP Morgan Chairman Jamie Dimon has said his bank has “stepped up” at the government’s request to prevent further shock to the financial system. Dimon has highlighted the solidity and capabilities of his entity to execute the operation with minimal cost to the FDIC. Well, the situation called for a savior. That, like it or not, cannot be denied. But the price of avoiding disaster was high: The big ones got bigger and the little ones got smaller.
US regional banks are in the doldrums. The purchase of First Republic by JP Morgan is just one more example of how the big eat the small in this crisis. While small and medium-sized banks suffer from competition and regulation, large banks grow stronger and expand across the country. This crisis is not the same for everyone. In fact, it cannot be called a banking crisis. It is rather a crisis of the non-big banks. Because the big banks are celebrating. In fact, in the last quarter, its profits have skyrocketed.to. Banking crisis?
First Republic has gotten into trouble for wanting to cover more than it could. According to experts, the bank was carried away by greed and waste. Born in 1985, First Republic dedicated itself to pampering wealthy clients and businesses. First Republic wanted more and could less. The bank was ambitious and reckless. His business was to flatter wealthy clients. But the plan went backwards.
Of course, the bank was not satisfied with serving its VIP clients and jumped into the pool of mortgage and commercial loans. The problem is that the pool was empty of water and full of risks. When the real estate market turned ice cold and defaulters multiplied, First Republic took quite a hit. His solvency was shattered and his losses skyrocketed. As if that were not enough, the bank saw its clients turn their backs on it and take their deposits elsewhere. After the collapses of Silicon Valley Bank and Signature Bank, no one wanted to stay on the sinking ship. So First Republic ran out of money to pay its debts..
Faced with this critical situation, First Republic desperately sought a solution. In mid-March, it received a $27 billion capital injection from a consortium of 10 or more other banks. However, heUnfortunately, this measure was insufficient to restore confidence in the entity and stop its financial bleeding.
Finally, last weekend, the authorities decided to seize the bank and put it up for sale. youFollowing an express auction, JP Morgan submitted the best offer and kept First Republic’s assets and deposits. The big one took advantage and emerged victorious.
With this operation, JP Morgan, without a doubt, consolidates its leadership in the US banking sector and demonstrates its ability to take advantage of the opportunities offered by the crisis. The bank had already acquired Bear Stearns and Washington Mutual in 2008, two entities also affected by the financial crisis. It now adds First Republic, a bank with a broad base of wealthy clients and growth potential, to its portfolio.
JP Morgan expects to quickly integrate First Republic into its structure and take advantage of its synergies and economies of scale. The bank also expects to improve the risk management and profitability of First Republic’s loan portfolio. In addition, the bank hopes to maintain the loyalty of First Republic customers and offer them a broader range of financial products and services. The winner gets the prize.
The purchase of First Republic by JP Morgan has caused a lot of talk in the financial world. On the one hand, there are those who turn green to see the largest bank in the US take another bite. On the other hand, there are those who are relieved to see that First Republic has been saved from bankruptcy and that its clients have not lost their savings, thanks to the help of the Government and friend JP Morgan. And finally, andThere are those who cringe as regional banks in the US find it increasingly difficult to compete.
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