JPMorgan Chase, Officially the Riskiest Bank in the U.S., Is Allowed by Federal Regulators to Buy First Republic Bank

Gunnar Larson g at xny.io
Mon May 1 13:27:03 PDT 2023


https://wallstreetonparade.com/2023/05/jpmorgan-chase-officially-the-riskiest-bank-in-the-u-s-is-allowed-by-federal-regulators-to-buy-first-republic-bank/


By Pam Martens and Russ Martens: May 1, 2023 ~

First Republic Bank LogoOn Wall Street, the business model is you eat what
you kill. Jamie Dimon and the bank he helms, JPMorgan Chase, just devoured
First Republic Bank after Dimon had orchestrated the worst “rescue” of
First Republic in the history of banking rescues. Given the outcome, one
has to wonder if this rescue flop was a bug or a feature. (See Related
Articles below.)

After 7 weeks of Jamie Dimon’s “rescue,” First Republic and its preferred
shares had been downgraded by credit rating agencies to junk; its common
stock had lost 98 percent of its market value, closing at $3.51 on Friday
and at $1.90 in pre-market trading early this morning; its long-term bonds
were trading at 43 cents on the dollar; and depositors continued to flee
the bank.

And in order to pay out all those deposits that were taking flight, First
Republic had to take out expensive loans from the Fed, the Federal Home
Loan Bank of San Francisco, and a credit line from JPMorgan Chase,
jeopardizing its future profitability. The interest cost of those loans
significantly exceeded, in many cases, the rates it had locked in on the
jumbo residential mortgages it had made to its wealthy clients and the
government-backed bonds it had purchased during years of low interest rates
on Treasury securities.

JPMorgan Chase’s statement on the takeover of First Republic this morning
indicated that it “is not assuming First Republic’s corporate debt or
preferred stock” and the “FDIC will provide loss share agreements covering
acquired single-family residential mortgage loans and commercial loans, as
well as $50 billion of five-year, fixed-rate term financing.”


Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress

Dimon’s so-called rescue plan, announced on March 16, made no sense from
the beginning. It consisted of 11 banks chipping in a total of $30 billion
to place into First Republic Bank as uninsured deposits for 120 days. Four
banks contributed two-thirds of the total deposits with JPMorgan Chase,
Bank of America, Citigroup and Wells Fargo sluicing $5 billion each. Morgan
Stanley and Goldman Sachs deposited $2.5 billion each; while BNY Mellon,
State Street, PNC Bank, Truist and U.S. Bank each deposited $1 billion.

But at the time of this display of heroics, First Republic Bank was
bleeding deposits because it already had too many uninsured deposits –
those above the FDIC cap of $250,000. And its losses on underwater
mortgages and low-yielding bonds were making headlines every day. What it
needed was an injection of long-term capital, not an injection of more
uninsured deposits with a short-term horizon.

To keep the pitchforks at bay from the other 10 banks that chipped in to
the $30 billion rescue fund of uninsured deposits, JPMorgan Chase said in
its statement that it will be repaying the 10 banks for the deposits they
each contributed.

What is raising eyebrows across Wall Street and throughout the Biden
administration this morning, is that JPMorgan Chase is already ranked by
its regulators as the riskiest bank in the U.S. (See Federal Data Show
JPMorgan Chase Is, By Far, the Riskiest Bank in the U.S.) Making it bigger
simply makes it more systemically riskier.

JPMorgan Chase’s history of gobbling up competitors is both stunning and an
indictment of federal banking regulators. In 1955, Chase National Bank
merged with The Bank of the Manhattan Company to form Chase Manhattan Bank.
In 1991, Chemical Bank and Manufacturers Hanover announced their merger.
Both banks had been severely weakened – Chemical from bad real estate loans
and Manufacturers from bad loans to developing nations. In 1995, Chemical
Bank merged with Chase Manhattan Bank. In 2000, JPMorgan merged with Chase
Manhattan Corporation. In 2004, JPMorgan Chase merged with Bank One. In
2008, during the height of the financial crisis, JPMorgan Chase was allowed
to buy Washington Mutual. These are just the largest bank consolidations.
Over the years, Chase acquired dozens of smaller banks.

At the time of JPMorgan Chase’s purchase of Washington Mutual in 2008 –
WaMu was the largest bank failure in U.S. history. JPMorgan Chase is now
being allowed to purchase First Republic Bank, the second largest bank
failure in U.S. history.

This flies in the face of President Biden’s Executive Order of July 9 2021,
where he promised that his administration would “guard against excessive
market power” and enforce antitrust laws. With regard to banks, the
President wrote:

“To ensure Americans have choices among financial institutions and to guard
against excessive market power, the Attorney General, in consultation with
the Chairman of the Board of Governors of the Federal Reserve System, the
Chairperson of the Board of Directors of the Federal Deposit Insurance
Corporation, and the Comptroller of the Currency, is encouraged to review
current practices and adopt a plan, not later than 180 days after the date
of this order, for the revitalization of merger oversight under the Bank
Merger Act and the Bank Holding Company Act of 1956 (Public Law 84-511, 70
Stat. 133, 12 U.S.C. 1841 et seq.) that is in accordance with the factors
enumerated in 12 U.S.C. 1828(c) and 1842(c).”

See In 16 Years, the Fed Has Approved 4,506 Bank Mergers and Denied One.

The Bank Holding Company Act, a federal law, prohibits banks that control
“more than 10 percent of the total amount of deposits of insured depository
institutions in the United States” to purchase another bank.

According to its call report to federal regulators, as of December 31,
2022, JPMorgan Chase held $2.01 trillion in deposits in domestic offices
and $426 billion in deposits in foreign offices, for a total of $2.4
trillion. According to the FDIC, as of December 31, 2022, there was a total
of $17.7 trillion in domestic deposits in all U.S. banks and savings
associations. That means that JPMorgan Chase held 11.36 percent of total
U.S. domestic deposits, well in excess of the 10 percent cap, and should
have been ineligible to buy yet another bank and become even more
systemically dangerous.

But some smart Wall Street lawyer or lobbyist had the clever foresight to
stick into the legislation that the market share cap could be waived if the
acquisition involved one or more banks in default or in danger of default.

This caveat makes about as much sense as Jamie Dimon’s “rescue” plan. Just
what the United States does not need in the time of a banking crisis, when
one or more banks are defaulting, is to put in place a more systemic future
banking crisis by consolidating big banks.

In addition, under the tenure of Jamie Dimon as Chairman and CEO of
JPMorgan Chase, the bank has racked up an unprecedented five felony counts
and a rap sheet that is likely the envy of the Gambino crime family. And
yet, mainstream media continues to hold Dimon up as the wise and prudent
wizard of Wall Street. (See Jamie Dimon Tells 60 Minutes He’s a Patriot;
There’s Good Reason to Think He’s a Crime Boss; and JPMorgan’s Board Made
Jamie Dimon a Billionaire as the Bank Rigged Markets, Laundered Money, and
Admitted to Five Felony Counts.)

Related Articles:

At Year End, JPMorgan Chase Held Over $1 Trillion in Uninsured Deposits
Versus $119 Billion at First Republic

Banks that Put Up $30 Billion to “Rescue” First Republic May Have Been
Trying to Rescue their Own Exposure to $247 Trillion in Derivatives

Jamie Dimon’s Deeply Conflicted Role as “Rescuer” of First Republic Bank
Requires a Credible Investigation

First Republic Bank, Without the $30 Billion in “Rescue” Funds, Lost $102
Billion in Deposits in One Quarter or 58 Percent

Ahead of First Republic Bank’s Earnings Report Today, Moody’s Paints a
Bleak Outlook

First Republic Bank’s “Rescuers” Had Underwritten $3.6 Billion of its
Preferred Shares, Which Have Lost 65 to 70 Percent of their Value
Year-to-Date

First Republic Bank: Dark Pool Trading by “Rescuers” Exploded in Volume as
FRC Tanked

First Republic: Meet the Bank at the Center of the Michael Cohen Scandal

Congress Sweats the Small Stuff as Four Wall Street Mega Banks Have a
Combined $3.3 Trillion in Uninsured Deposits.
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