First Republic Saved By “Dimon Hands”

It appears that Friday’s rumors of the Federal Deposit Insurance Corporation (FDIC) putting First Republic Bank (FRC) into receivership were true. Over the weekend, regulators pulled together bids from several of the country’s leading banks, with JPMorgan Chase coming out on top. 💪

Retail investors are used to “Diamond Hands,” but “Dimon Hands” seem much more appropriate for this story. JPMorgan Chase will definitely be HODLing the failing bank’s assets, but not without some sweet government incentives. 💰

Let’s see how the U.S.’s second-largest bank failure (and third since March) panned out for America’s largest bank. 👇

First off, there were several bidders for the regional bank’s assets, including PNC Financial Services, Bank of America, and others. They were given the weekend to review FRC’s records and place bids as the FDIC auctioned off the failed bank. By the end of the weekend, several had dropped out and left JPMorgan Chase with a winning bid of $10.6 billion. 🗳️

The company’s press release outlined these critical elements of the deal:

  • JPMorgan will acquire a substantial majority of First Republic Bank’s assets ($173 billion loans, $30 billion securities)
  • JPMorgan will assume $92 billion of deposits (includes $30 billion of large bank deposits to be repaid post-close)
  • FDIC will provide $50 billion five-year, fixed-rate term financing
  • FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans
  • JPMorgan will not assume First Republic’s corporate debt or preferred stock

First Republic branches normally opened today, and clients will continue receiving uninterrupted service. The deal helped protect insured and uninsured deposits at the bank, helping quell some of the market’s fears about the banking system. Longer-term, FRC’s 84 offices will reopen as branches of JPMorgan Chase. 🏦

From a qualitative perspective, the acquisition will strengthen JPMorgan’s position in the wealth management space. It also broadened its deposit base and its foothold in lucrative coastal markets.

Quantitatively, the company expects to:

  • Recognize an upfront post-tax gain of approximately $2.6 billion (excluding $2 billion of post-tax restructuring costs)
  • Remain very well-capitalized with a CET1 ratio consistent with its Q1 2024 target of 13.5% and healthy liquidity buffers
  • Achieve modest EPS gains, generating more than $500 million of incremental net income per year

JPMorgan CEO Jamie Dimon had this to say, “Our government invited us and others to step up, and we did.” And step up, they did. But they certainly made out well, as the FDIC is expected to lose $13 billion on the deal. 😬

Additionally, he noted, “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.”

While Dimon says the immediate danger of this crisis is over, someone forgot to tell regional bank stocks.

The ETF that tracks the industry, $KRE, was down nearly 3% and nearing a fresh low. As for its components, only eight were positive, and 135 were negative today. Investors were focused on names like $PACW, $VLY, $MCB, $HMST, and others who were hit hardest. 👀

Auto Parts Retailer Sent To Junkyard

One of these auto parts retailers is not like the other… 🤔

The troubles at Advance Auto Parts continue, with S&P Global Ratings downgrading the retailer’s credit rating to ‘junk’ status. The rating agency cut its issuer-credit rating to BB+, the highest speculative-grade rating. The downgrade from BBB- was accompanied by its outlook being cut from stable to negative. ⚠️

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Pharmacies Fall Ill As Insurer Picks Amazon

It has been a rough year for retail pharmacy chains CVS and Walgreens, with their stocks falling sharply while much of the market rallied. And that weakness is continuing today on fears that Amazon is getting ready to eat even more of their lunch. 😨

That’s because Blue Shield of California decided to drop the company’s pharmacy benefit management services. Instead, they’re partnering with Mark Cuban’s Cost Plus Drug Company and Amazon Pharmacy, potentially delivering major savings for its roughly 5 million members. 🤝

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Walgreens Boots Its CEO

It’s been a rough ride for pharmacy retailer Walgreens Boots Alliance shareholders, with shares peaking in 2016 and not looking back! 📉

Unfortunately, the pain continued today as the company booted (sorry, mutually agreed) to part ways with CEO Roz Brewer after about three years. The company is replacing the retail veteran as it looks to transition more into a healthcare company instead of a retail drug store. She also left the company’s Board of Directors.

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Europe’s New “Largest Company”

There’s a new king of the European content, with the title changing hands for the first time years. 👑

We last talked about LVMH in June, when it became the first European company to pass a $500 billion valuation. Since then, it’s fallen on fears of a slower-than-anticipated recovery in China, allowing a competitor to catch up. 

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