Regulators Seize First Republic -- and JPMorgan Chase Takes It Over 5/1/23

Carl Quintanilla (0:00)

Market moving insight and analysis. Join Jim Cramer, David Faber, and me, Carl Quintanilla, on the opening bell hour of CNBC Squawk on the Street.

Good Monday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Jim Cramer at the New York Stock Exchange. David Faber at the Milken Institute Global Conference of Beverly Hills. Future is pretty steady here as we kick off May with a big week ahead. JPMorgan buying most of First Republic. We'll get 20% of the S&P reporting earnings, including Apple, Fed decision, Joltz, and a jobs number. A robot begins with the First Republic failure. JPM taking it over after being seized by regulators. The third US bank collapse since March.

Stocks are coming off a second month of gains. Investors watching what's to come from the Fed this week and signs of a slowing adoption of EVs. GM gets an upgrade about that over at Morgan Stanley.

Let's begin though with the collapse of First Republic and its seizure by regulators. The FDIC announcing that JPMorgan Chase has agreed to assume all of the bank's deposits and substantially all of its assets. Just last week, as you know, First Republic disclosed that in March, customers pulled more than 100 billion in deposits following the failures of both SVB and Signature. But on a conference call in the past hour, Jamie Dimon says the American banking system is extraordinarily sound and they took pains, Jim, to paint this in a much different light than what happened in 8

Jim Cramer (1:18)

Yeah, I really like that because they talked about how their pristine loans this time, I think that really matters. These are homes that are very big, I mean, these are like $5 million homes that they lend a million dollars on. I'm sure that Jamie has looked at the book.

There's a nice cushion from the FDIC. Of course, they are actually paying.

That's not been talked about. They're gonna make a payment of $10.6 billion to the FDIC. That way it won't look like just a giant gift. And David, it looks like to me that this is just a win for JPMorgan, but also a win for the system because the banks that look like they're gonna write off the FDIC money are gonna get back.

David Faber (1:58)

Right.

Yeah.

I guess it is overall. I'm just trying to think through what you just said in terms of writing off the FDIC money, Jim, because there was an expectation coming into this that JPMorgan would be incented to be the highest bidder in part because it's the highest provider, the largest provider of assessment when given its 11% of the insurance deposits, essentially, even more than that now with its deposits going up. But your point is an important one. $10.6 billion goes in. There's a lot of movement here going in and out in terms of assets. But overall, I mean, let's just get to the basic facts here as we know them from JPMorgan. They'll get $173 billion loans, $30 billion of securities. To your point, they're going to pay the FDIC $10.6 billion, and we assume they were the highest bidder, of course, of the other banks that were at least competing to buy this franchise and what was left of it. Fair value marks on acquired loans, roughly $22 billion. So the average loan mark, about 87%. Jim, that gives you a sense here as to what they're buying. It's going to be accretive, but obviously, there are also going to be some restructuring charges associated with it as well.

Jim Cramer (3:05)

Well, that loan to value that you mentioned is very, very strong.

Obviously, they gave very rich people a break in order to get their business. Maybe those very rich people stay with JPMorgan. David, one of the things that Jamie is talking about is, look, we're kind of at the end of this concern about deposits. And yet the market is actually down. I think the market is stupid. This is really very positive for the system, which I got to tell you, David, on Thursday, it looked like everybody was going to get hit. Wells Fargo was going to get hit and lose the money that it put in.

Morgan Stanley lose the money. And it looks like that's what I'm talking about versus what they had to bail the bank out.

David Faber (3:43)

Oh, I see. I get it. I get it.

Right. The 30 billion in deposits that was made by those large banks to try to instill confidence in the system. That was March 16th, of course.

It didn't really succeed in doing that, but it did at least result in First Republic having some more time and an important interregnum of time as well, given during which we heard from many of the regional banks. We saw their earnings. We got a sense of the deposit flows. We always knew First Republic was having a hard time potentially and had lost perhaps more deposits than many others. Jim, though, to your point as well, because of that amount of time that went by, things have stabilized. But I don't think that if you're a banker, you can ignore the fact that it took four hours for $42 billion to leave Silicon Valley Bank. And that is something that we may have not fully dealt with yet.