The chief executive of JP Morgan Chase yesterday claimed the immediate US banking crisis is “over”.
Jamie Dimon was commenting as he stepped in to rescue its third victim in two months - Californian lender First Republic.
The CEO who led JP Morgan through the 2008 financial crisis said there was a limit to the number of banks that would collapse under the forces that have felled First Republic, Silicon Valley Bank and Signature Bank.
But The Telegraph says there is growing disquiet that America's largest bank is fast becoming “too big to fail”.
The latest deal strengthens JP Morgan’s position as the US’s foremost lender, but will potentially trigger concerns that it is becoming too systemically important.
It now holds an estimated 14.2% of American deposits, or £2trillion, compared to 13.7% previously.
Receivership
Banks normally have to get regulatory approval to takeover deposits if they already control more than 10% of US deposits, but this does not apply to deals where the target is in receivership.
R. Scott Siefers and Frank Williams, at financial services company Piper Sandler, commented: “JP Morgan had already been the go-to deposit destination for nervous customers, and now it is officially taking a problem institution out of the game and easing concerns again.
“JPM was already a hugely-significant player that has now managed to make itself even more so at a time when 'too-big-to-fail' is still a political concern.”
Mr Dimon cautioned there could yet be further trouble further down the track given higher interest rates, but he recommended taking a “deep breath” as the banking system is “very stable”.
He addressed analysts following a frantic 48 hours ending on Monday morning with JP Morgan agreeing to take on First Republic’s £138billion of loans and £73billion of deposits after regulators seized the troubled bank.
The deal involves JP Morgan paying £8.5billion to the Federal Deposit Insurance Corp.
Wiped out
It wipes out First Republic’s shareholders, and ranks as the US’s second-largest banking failure since Washington Mutual in 2008, at the height of the financial crash.
First Republic has been struggling since the failure of tech-focused Silicon Valley Bank on March 10 as rising inflation and interest rates led depositors to pull money and lowered the value of SVB’s investments.
Amid contagion fears, banks including JP Morgan and Bank of America put £24billion into First Republic in March to “reflect their confidence in First Republic and in banks of all sizes”.
The US's 14th largest bank continued to struggle, however, with nervous depositors starting to pull funds, and as it became harder to supply cheap mortgages.
Last week, it reported a £80billion fall in deposits between January and March, spooking investors.
On Friday, its shares plunged by as much as half, slashing its market value to around £480million compared to more than £21billion at the start of February.
Interest rate
Some experts speculated the collapse may put on hold an anticipated quarter-point rise in the US interest rates when Federal Reserve officials meet on Wednesday, as they try to avoid stoking further problems.
Asked by analysts on Monday about the outlook for the banking sector, Mr Dimon said: “No crystal ball is perfect but yes, I think the banking system is very stable.
“You guys have reported already that tons of regional banks have actually had good results, very modest outflow.
“A lot of the deposit outflows were because of quantitative tightening - it wasn't because these people were having runs.
“There are only so many banks offside this way – there may be another smaller one, but this pretty much resolves them all – this part of the crisis is over.”
He added: “That does not – down the road there, you know, rates going way up, real estate, recession. That's a whole different issue. But, for now, everyone should just take a deep breath.”
FTSE 100
The UK's top share index, the FTSE 100, was up 14 points at 7,884 shortly after opening this morning, following last Friday’s 38-point gain.
Brent crude futures slipped 0.21% to $79.14.
Companies reporting today
- Q1 results: BP, HSBC Holdings, Pfizer