?? JPMorgan Swoops In... again ?? Also: Apple, US & German inflation, NatWest, BYD ?? The FDIC, which seized First Republic

• US large-cap S&P 500 closed 0.04% DOWN ???
• Tech-heavy Nasdaq Composite closed 0.11% DOWN ???
• Pan European STOXX Europe 600 closed 0.62% UP ▲?
• HK's Hang Seng Index closed 0.27% UP ▲?
• Japan's broad TOPIX closed 1% UP ▲

?? Focus

• JPMorgan Swoops In... again

?? In the Markets

• Apple, US & German inflation, NatWest, BYD

?? MoneyFitt EXPLAINS

• ?? The FDIC, which seized First Republic

?? Focus

JPMorgan Swoops In... again

So the biggest bank in America (and the world, based on market value) has "stepped up" once again to rescue the US banking system and take over First Republic Bank. It flipped in a matter of months from just an advisor to a (huge, uninsured) depositor and then to being the rescuer and owner of most of a large, failing bank, buying it from the Federal Deposit Insurance Corporation ?? (FDIC, which is effectively funded by charges on depositors) which had seized it via California's banking regulator.

You can call it "a rescue" if you like

- Image credit: Tenor

- - -

..... ? From the perspective of the Biden administration, this deal, at the end of a weekend auction, achieved its key priorities: avoiding contagion to the US economy, minimising the risk to taxpayers and protecting depositors over shareholders or debtholders.

..... ? Without this deal, JPMorgan would never have been allowed to expand its already enormous footprint, as it already breached the 10% limit for deposit market share that would block it from further acquisitions. JPMorgan, with $3.7tn in assets (with a T), will get an additional $200bn thanks to the purchase ($173bn in loans, $30bn in securities) and about $100bn in deposits with a strong franchise among wealthy Californians for just $10.6bn. The seller, the FDIC, will also give JPMorgan a $50bn five-year loan to fund the long-term loans it's getting and, in swallowing up the bits Jamie doesn't want, will probably lose $13bn on the deal, including 80% of bad loan "burden-sharing" with JPM. (JPM will get a one-time $2.6bn profit on the deal, but expects to spend $2bn on restructuring costs over the next 18 months.)

“This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.” - Jamie Dimon, CEO of JPMorgan Chase & Co. (adding: “The whole world knew it was available, and no one bought it”)

..... ? At the widely-watched Milken Institute conference held in Beverly Hills, leading lights speculated about the impact of the takeover/rescue, focusing largely on how tighter regulations likely to come to prevent a recurrence would crimp the willingness of lenders to actually do any lending, just as the economy was starting to roll over from higher interest rates. Taking the opposite position, Kristalina Georgieva, the head of the IMF, pointed squarely at "unnecessary deregulation" and "now we saw the price to pay. We saw supervision has not been up to par”, echoing the Fed's findings on Friday that blamed the 2018 Trump-era roll-back of post-Global Financial Crisis safeguards for contributing to the SVB failure.

..... ? Not Jamie's first rodeo. Back in the GFC days, JP Morgan was convinced by the authorities to save first the investment bank Bear Stearns for $1.4bn and then the banking bits of mortgage lender Washington Mutual for $1.9bn (the only bigger US bank failure than First Republic, which edged out SVB in the Hall of Shame to 3rd place.) He's said since that he wouldn't have done them (especially after paying $19bn in fines for transgressions before the takeovers.) Presumably, the conditions for the purchase this time were far tighter, even though the JPM bid was by far the most attractive on the table.

If you are enjoying The MoneyFitt Morning, it would help us greatly if you referred friends and colleagues to subscribe! They will also learn what's important in investing & business and you'd be helping us grow! We are also available via email on Beehiiv - to subscribe, click here?

?? In the Markets

After a Friday that kept the Big Tech momentum going, Monday's trading was dominated by the "rescue" by JP Morgan of troubled First Republic Bank, which had, unlike many other mid-sized lenders, been seeing a continued outflow of deposits. The "rescue" is, of course, of the bank's depositors and not the shareholders, who had already been nearly wiped out by Friday, when it halved (again) to bring it to a 97% drop since the start of the year. More in the Focus article above.

“There are only so many banks that were offsides this way. There may be another smaller one, but this pretty much resolves them all; THIS PART of the crisis is over” Jamie Dimon, CEO of JPMorgan Chase & Co (our emphasis)

￥ Weakness: Kazuo Ueda, the new governor of the Bank of Japan, played it pretty safe during his debut announcement, focusing on a comprehensive review of the BoJ’s policies without explicitly revising his predecessor's controversial, market-distorting yield curve control measures. Ueda is tasked with interest rate normalisation from the BoJ's ultra-loose policies, with consumer prices hitting multi-decade highs. The yen fell sharply on Friday and continued its slide on Monday. (This sent DXY, the Dollar Index, higher.)

The USDJPY chart shows how much JPY one USD can buy, so a higher line = weaker yen. Most currencies are usually quoted in this direction. (Notably, the GBP, EUR and AUD are quoted in the number of USD that one of them buys.)

- Image credit: Tradingview

- - -

Save Apple! The high-interest savings account Apple launched last month attracted almost $1bn of deposits in its first four days, with 240,000 accounts opened by the end of the first week, according to Forbes.

US Spending and Inflation: US personal consumer spending was flat in March, with persistent inflation and rising interest rates continuing to cause Americans to spend more on housing and utilities and less on goods, especially big-ticket items like cars. Meanwhile, the Federal Reserve’s preferred measure of inflation, the core personal consumption expenditures price index, remained steady in March at 0.3% compared to February. Compared to March 2022, prices were 4.6% higher, the lowest annual rate in over a year but still more than double the Fed's target.?

..... ? The Fed is still expected to hike rates by another 0.25% when it announces on Wednesday, with US labour costs increasing by more than expected in the first quarter, once again showing the red-hot resilience of the US jobs market despite Jay Powell's best efforts. The US Labor Department’s Employment Cost Index rose 1.2%, higher than the 1.1% expected and the 1.0% seen in the last three months of 2022. The fear is that labour costs will drive higher costs, driving up prices that pull wages higher in a dangerous wage-cost inflationary spiral.

German inflation: Inflation in Europe's largest economy fell to its lowest for more than a year in April, hitting a still elevated 7.6% annual rate, compared to 7.8% in the previous month. Month-on-month, i.e. compared to prices the previous month, April saw an 0.6% increase, a steep decline from 1.1% in March (compared to February.)

NatWest profits: UK High Street Bank NatWest saw its profits shoot up by almost 50% as the bank benefited from rising interest rates as the Bank of England, the central bank, hiked rates 11 times straight (with more likely to come.) The bank's "net interest margin" (the difference between the interest it gets on loans and the rate it pays out for deposits) rose by 0.82% to 3.27%, a massive increase thanks to their and their competitors' deposit rates going up much more sluggishly than the rates they charged on their loans. Highly paid City analysts were ￡200mn too low as pre-tax operating profits came in at ￡1.8bn.

BYD 5x: Electric vehicle giant BYD of China reported first-quarter profits up 411% in the face of the Tesla-initiated price war and generally slower sales growth in China, beating expectations and again validating the company's vertically integrated EV supply chain model. BYD is leading the domestic carmakers' push to dominate the EV market in China, pushing aside the foreign joint ventures (JVs) that still dominate in conventional internal combustion engine cars (though Tesla ranked second with around 11% of the EV market, behind BYD's 40% share.)

MoneyFitt EXPLAINS?

?? The Federal Deposit Insurance Corporation (FDIC)

• The FDIC is an independent agency reporting to Congress and no other agency, including the Federal Reserve. It's a regulator in its own right with the authority to examine and supervise banks for safety and soundness and to take enforcement actions against those that do not comply
• Its primary function is to protect depositors in case of bank failures by insuring deposits at FDIC-insured banks up to (currently) $250,000 per depositor, per ownership category (e.g. individual, joint, trust, retirement accounts), per insured bank
• When a bank fails, the FDIC steps in to resolve the bank's assets and liabilities. This process involves finding a buyer for the bank's deposits and assets, or liquidating the bank if no buyer is found.
• Many other countries have similar deposit insurance schemes, such as the Deposit Insurance Corporation of Japan (DICJ), the UK's Financial Services Compensation Scheme (FSCS), the Singapore Deposit Insurance Corporation (SDIC) and the European Union's Deposit Insurance Scheme (EDIS) though the specific details and limits will differ.