by Michael
Yes, you read the headline appropriately. Collectively, the three big banks which have collapsed in 2023 had more assets than all 25 banks that collapsed in 2008 did. Unfortunately, the banking collapse of 2023 is much from over. We still have eight more months to go before this 12 months is completed, and lots of more banks are currently teetering on the point of disaster. Executives at those banks are telling us not to fret, but in fact executives at First Republic were issuing similar assurances just last week. Personally, I had heard that First Republic supposedly had enough reserves to maintain going for months. But that was a lie, and now First Republic is toast. The next comes from the official statement that the FDIC issued when it took over the bank…
First Republic Bank, San Francisco, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To guard depositors, the FDIC is stepping into a purchase order and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all the deposits and substantially all the assets of First Republic Bank.
JPMorgan Chase Bank, National Association submitted a bid for all of First Republic Bank’s deposits. As a part of the transaction, First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, National Association, today during normal business hours. All depositors of First Republic Bank will change into depositors of JPMorgan Chase Bank, National Association, and can have full access to all of their deposits.
The federal government was not going to permit just anyone to snap up the assets of First Republic.
JPMorgan Chase was considered one of the institutions that was invited to make a bid, and so they got here out of this process as the massive winners…
JPMorgan is getting about $92 billion in deposits within the deal, which incorporates the $30 billion that it and other large banks put into First Republic last month. The bank is taking over $173 billion in loans and $30 billion in securities as well.
The Federal Deposit Insurance Corporation agreed to soak up many of the losses on mortgages and industrial loans that JPMorgan is getting, and in addition provided it with a $50 billion credit line.
Along with providing JPMorgan Chase with a 50 billion dollar credit line, the FDIC may also take a loss on this deal of roughly 13 billion dollars. So that they are definitely considered one of the massive losers on this deal…
The FDIC estimates that the price to the Deposit Insurance Fund will likely be about $13 billion. That is an estimate and the ultimate cost will likely be determined when the FDIC terminates the receivership.
Pointless to say, the largest losers of all are the shareholders of First Republic.
They got completely worn out…
Stockholders got bailed in and worn out. They’d already been mostly worn out by Friday evening in one of the vital spectacular stock plunges ever.
Holders of the unsecured subordinated bank notes got bailed in and worn out nearly entirely. It is a type of preferred stock. For instance, the 4.625% bank notes, issued in 2017, traded at lower than 2 cents on the dollar this morning, one other spectacular plunge.
As I actually have all the time warned, you simply earn money within the stock market when you get out in time.
Shareholders of First Republic found that out the hard way.
In comments that he made after the deal was consummated, JPMorgan Chase CEO Jamie Dimon boldly declared that “this a part of the crisis is over”…
“There are only so many banks that were offsides this manner,” Dimon told analysts in a call shortly after the deal was announced.
“There could also be one other smaller one, but this beautiful much resolves all of them,” Dimon said. “This a part of the crisis is over.”
And the U.S. Treasury is telling us that the U.S. banking system “stays sound and resilient”…
‘The banking system stays sound and resilient, and Americans should feel confident in the security of their deposits and the flexibility of the banking system to fulfil its essential function of providing credit to businesses and families,’ a Treasury spokesperson said.
Does reading that make you are feeling higher?
It shouldn’t.
They all the time offer such platitudes before things start getting really bad.
As I noted in the beginning of this text, the three banks which have collapsed to this point this 12 months were collectively greater than all the banks that collapsed in 2008 combined…
The three banks held a combined total of $532 billion in assets, which – in line with the Recent York Times and when adjusted for inflation – is greater than the $526 billion held by all of the US banks that collapsed in 2008 at the height of the financial crisis.
We’re only one-third of the best way through 2023.
And as Charlie Munger recently observed, lots of our banks are absolutely full of “bad loans” without delay…
Charlie Munger believes there may be trouble ahead for the U.S. industrial property market.
The 99-year-old investor told the Financial Times that U.S. banks are full of “bad loans” that will likely be vulnerable as “bad times come” and property prices fall.
He is kind of correct.
Particularly, the collapse of economic real estate prices threatens to create a large tsunami of defaults…
Berkshire Hathaway, where Munger serves as vice chairman, has largely stayed on the perimeter of the crisis despite its history of supporting American banks through times of turmoil. Munger, who can also be Warren Buffett’s longtime investment partner, suggested that Berkshire’s restraint is partially attributable to risks that might emerge from banks’ quite a few industrial property loans.
“Quite a lot of real estate isn’t so good anymore,” Munger said. “We’ve numerous troubled office buildings, numerous troubled shopping centers, numerous troubled other properties. There’s numerous agony on the market.”
As I keep telling my readers, we actually are on the verge of the biggest industrial real estate crash in all of U.S. history.
And as mountains of economic real estate loans go bad, lots more banks will begin to go under.
The “too big to fail” banks will scoop up people who they like, while others are simply liquidated and exit of existence.
Ultimately, I consider that we’re going to see a wave of consolidation within the banking industry like we never have before.
We’re still only within the very early chapters of this crisis. Much worse is yet to come back.
It’ll take some time for all of the dominoes to fall, but every time one other one tumbles over it would be an indication that the clock is ticking and that point is running out for the U.S. economic system.