Biden insists taxpayers will NOT be on the hook for the sale of First Republic Bank
President Joe Biden promised on Monday that taxpayers would not foot the bill after regulators stepped in to support the bakery industry following the collapse of First Republic Bank.
First Republic is the second largest US bank collapse after the bankruptcy of Washington Mutual during the 2008 financial crisis.
The assets were seized by the Federal Deposit Insurance Corporation and sold to JPMorgan so that the 84 branches would open on Monday.
Biden said the swift action protected the rest of the banking industry.
“Before we begin,” he said in the White House rose garden to mark Small Business Week, “I am pleased to say that regulators have taken action to facilitate the sale of First Republic Bank and ensure that all savers are protected and that taxpayers are not on the hook.
President Joe Biden promised on Monday that taxpayers wouldn’t foot the bill after regulators stepped in to support the bakery industry following the collapse of First Republic Bank
“These actions will ensure that the banking system is safe and sound.”
The collapse of First Republic was the third collapse in recent weeks.
Last week it revealed it had lost more than $100 billion in deposits in the first quarter, sending its shares plummeting.
The bank’s stock closed Friday at $3.51, a fraction of the roughly $170 per share it traded for a year ago. It fell further in after-hours trading.
It had struggled since the collapses of Silicon Valley Bank and Signature Bank, and investors and depositors grew increasingly concerned that it would not survive due to its large number of uninsured deposits and exposure to low-interest loans.
Before then, Silicon Valley’s wealthy clients had made the industry jealous.
The Federal Deposit Insurance Corporation said early Monday that First Republic Bank’s 84 branches in eight states will reopen as branches of JPMorgan Chase Bank on Monday.
Biden said the goal was to protect deposits, not stock prices.
“And so let me be very clear,” he said.
‘While savers are protected, shareholders lose their investments. And crucially, taxpayers are not the ones getting hooked.”
The deal allowed First Republic’s branches to open Monday morning
Jamie Dimon, chief executive officer of JPMorgan Chase & Co, who said of the purchase of First Republic: ‘Our government invited us and others to act, and we did’
The bank’s stock closed Friday at $3.51, a fraction of the roughly $150 per share it traded for just three months ago a year ago. It fell further in after-hours trading
Charlie Munger warns of thunderstorms, but not as bad as in 2008
Billionaire investor Charlie Munger has warned of an impending storm in the US commercial real estate market.
However, Warren Buffet’s 99-year-old sidekick said the crisis is not as bad as the 2008 global financial crisis, which burst the US housing bubble and required massive bailouts.
A handful of bank failures — including Silicon Valley Bank, Signature Bank, and now First Republic Bank — have sent a shock wave through the nation’s financial system.
With the failures, the US is now factoring in a possible commercial real estate crash.
But “it’s nowhere near as bad as it was in 2008,” Berkshire Hathaway’s vice chairman told the Financial Times.
“But the banking industry has problems, just as there are problems everywhere else. In good times you get into bad habits… In bad times they lose too much.”
Charles Munger, Vice Chairman of Berkshire Hathaway Inc., (left) with Warren Buffett, Chairman of Berkshire Hathaway Inc.
Regulators worked all weekend to find a way forward before US stock markets opened. Markets in many parts of the world were closed on Mondays for the May 1 holiday. The markets in Tokyo and Sydney, which were open, rose.
As of April 13, First Republic had about $229 billion (£182.2 billion) in total assets and $104 billion (£82.7 billion) in total deposits, according to the FDIC.
Late last year, the Federal Reserve ranked it 14th among U.S. commercial banks.
Before Silicon Valley Bank went bust, First Republic had a banking franchise that most of the industry envied.
The clients — mostly the rich and powerful, reportedly including Meta Platforms CEO Mark Zuckerberg — rarely defaulted on their loans.
Flooded with deposits from the well-to-do, First Republic saw total assets more than double from $102 billion (£81.2 billion) at the end of the first quarter of 2019, when its full-time workforce reached 4,600.
But the vast majority of his deposits, such as those in Silicon Valley and Signature Bank, were uninsured — that is, above the $250,000 (about £198,885) limit set by the FDIC — worrying analysts and investors alike. . If First Republic were to fail, savers may not get all of their money back.
That fear was crystallized in the bank’s recent quarterly results. The bank said depositors took more than $100bn (£79.6bn) out of the bank during the April crisis.
San Francisco-based First Republic said it could only stop the bleeding after a group of big banks stepped in to bail it out with $30bn (£23.9bn) in uninsured deposits.
Since the crisis, First Republic has been looking for a way to quickly turn itself around.
The bank planned to sell unprofitable assets, including the low-interest mortgages it issued to wealthy clients.
It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees by the end of 2022.
Investors remained sceptical. The bank’s executives have not answered questions from investors or analysts since the bank reported its results, which caused First Republic’s stock to fall further.
And it’s hard to profitably restructure a balance sheet when a company needs to sell assets quickly and has fewer bankers to find opportunities for the bank to invest in.
It took years for banks like Citigroup and Bank of America to return to profitability after the global financial crisis 15 years ago, and those banks had the benefit of a government-backed backstop to keep them afloat.