Bankrupt Again! First Republic Bank Collapses, Bigger Than Silicon Valley
In less than two months, three banks in the United States have gone bankrupt.
Following Signature Bank and Silicon Valley Bank, First Republic Bank in the United States also collapsed on May 1st and was designated to be taken over by the Federal Deposit Insurance Corporation (FDIC), the banking regulatory agency.
At the same time, the FDIC announced in the first instance that it has signed an agreement with JPMorgan Chase, with JPMorgan Chase Bank assuming all deposits and almost all assets of First Republic Bank.
Despite the FDIC's swift action, it remains unknown whether the U.S. banking industry will continue to experience explosions and whether the U.S. government still has money to help "fill the hole."
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Despite active self-help efforts, the bank was ultimately forced to close.
First Republic Bank was founded in 1985 and ranked 14th in the United States as of the end of last year.
Silicon Valley Bank and Signature Bank, which experienced explosions in March, ranked 16th and 29th, respectively, with First Republic Bank ranking ahead of both.
Why has such a financial giant, a super bank, come to this point today?
The direct reason is the public's anxiety about the U.S. banking industry spreading, with banks in Europe and America experiencing consecutive explosions in the past two months, leading to unprecedented concerns about assets in banks.
Especially, First Republic Bank mainly provides financial services for "high-net-worth individuals," with a customer base mainly consisting of wealthy people.If the deposit amount exceeds $250,000, it is not covered by the Federal Deposit Insurance Corporation (FDIC) insurance protection.
As a result, a large number of depositors are scrambling to transfer their deposits out of banks. According to the latest financial report of First Republic Bank in the United States, the scale of deposit outflows in the first quarter reached as high as $102 billion, leading to a run on the bank crisis.
In fact, in order to reverse the crisis, First Republic Bank in the United States has actively carried out self-help measures, including announcing a 1/4 layoff, a total of 7,200 employees, selling low-yield assets, and so on, but it has been too late to make a difference.
Since the bankruptcy of Silicon Valley Bank, the stock price of First Republic Bank in the United States has plummeted from $147 to $15 in one fell swoop.
Then, starting from last Monday, there was another round of continuous halving, and the current stock price is only $3.51, which is clearly heading towards bankruptcy at full speed.
First Republic Bank in the United States, after all, has not been able to hold on.
JPMorgan Chase became the "white knight"
Media reports indicate that the FDIC actually invited JPMorgan Chase, Bank of America, and U.S. Bancorp to discuss the acquisition of First Republic Bank, but both Bank of America and U.S. Bancorp chose to withdraw.
As a result, JPMorgan Chase became the only "white knight" for First Republic Bank.
The reason why JPMorgan Chase is so active in acquiring First Republic Bank in the United States this time has deeper underlying reasons.In March of this year, following the fallout from Silicon Valley Bank's implosion, which triggered a run on First Republic Bank, JPMorgan Chase led a consortium of 11 U.S. financial institutions to inject $30 billion in emergency funding to fill the gap.
However, for investors who had become like frightened birds, this did little to ease their concerns.
As of April 13th, First Republic Bank's deposits had dwindled to $103.9 billion, with $30 billion of that amount being deposited by JPMorgan Chase.
It can be said that if JPMorgan Chase had not stepped in as the "white knight" this time, that $30 billion might have been lost.
Nevertheless, despite this, JPMorgan Chase did not make a losing deal.
Firstly, JPMorgan Chase's acquisition of First Republic Bank was completed after the Federal Deposit Insurance Corporation (FDIC) took over.
Unlike acquiring before the takeover, where JPMorgan Chase would have had to buy all the shares from First Republic Bank's shareholders and then assume all assets and liabilities, the post-takeover acquisition is akin to a bankruptcy acquisition. Based on the principle that债权优先于股权, JPMorgan Chase not only saved on the costs of paying the shareholders of First Republic Bank, but the FDIC also shares in the losses resulting from the acquisition of First Republic Bank with JPMorgan Chase. The FDIC estimates that this cost could reach as high as $13 billion.
What JPMorgan Chase had to pay out primarily was to cover all the deposits of First Republic Bank, a calculation that was well thought out and sounded like a well-played game.
Secondly, U.S. law stipulates that the total amount of deposits a bank can attract nationwide cannot exceed 10% of the total national deposit amount.In theory, Morgan Bank has already crossed the red line and should not be able to acquire First Republic Bank.
However, there is an exception to this rule, which allows for the takeover of banks that have already failed or are in danger of failing.
This time, First Republic Bank in the United States was taken over by the FDIC, and Morgan Bank injected $30 billion in advance, becoming the most suitable "white knight" and gaining an opportunity to further grow stronger.
The U.S. banking industry's turmoil is far from over.
The essence of the successive explosions in the U.S. banking industry is still the continuous interest rate hikes by the Federal Reserve.
Over the past decade, the Federal Reserve has maintained a loose monetary policy with low interest rates, but in order to curb the high inflation pressure within the country, the Federal Reserve has aggressively raised interest rates in the past year, causing many large bond investment portfolios purchased by U.S. banks to depreciate.
Therefore, the deposits of small and medium-sized banks have been continuously flowing out, and once the Federal Reserve continues to raise interest rates, the failure of these small and medium-sized banks with low risk resistance is only a matter of time.
In addition, the biggest problem in the United States at present is that there is no more spare money to bail out the banking industry.
As early as January of this year, the United States had already reached a debt ceiling of $31.4 trillion and is facing a severe debt crisis.
Even U.S. Treasury Secretary Yellen had to go back on her word not long ago, changing from promising to bail out the U.S. banking industry to "if not approved by Congress, U.S. bank deposits will not be able to obtain a package insurance."Therefore, if the U.S. banking industry continues to experience significant failures, it will sooner or later become a systemic crisis, leading to more severe consequences.
In conclusion:
The turmoil surrounding the collapse of Silicon Valley Bank has just temporarily subsided, and the First Republic Bank of the United States has followed suit, once again raising concerns about the crisis in the U.S. banking industry.
Given the current situation, it is believed that the First Republic Bank will by no means be the last, with even more dramatic events yet to come.