— This is the script of CNBC's news report for China's CCTV on May 02, 2023.
After the collapse of Silicon Valley Bank and Signature Bank in March, the banking crisis in the United States remained calm for a few weeks. However, with the recent collapse of First Republic Bank, the banking industry crisis has once again become the focus of attention. Analysts point out that First Republic Bank had long been on the brink of a crisis, and it is surprising that this acquisition has not occurred until now.
Gary Cohn
Former NEC Director
"I think one should be shocked. It took this long to get here. I think everyone knew that First Republic was in trouble three or four weeks ago. And the assets just deteriorated deposits continued to leave the bank."
Let us look at the impact of this acquisition from both micro and macro perspectives. First of all, for JPMorgan Chase, some analysts believe that this may be its best acquisition in decades, as the customers of First Republic Bank will strengthen JPMorgan's wealth management department. This acquisition may generate annual net income of $500 million to $1 billion or more for JPMorgan.
As a result, JPMorgan's stock price rose by approximately 2.1% overnight after the deal, the largest increase in two weeks.
However, some analysts also point out that this acquisition will make JPMorgan Chase, which is already the largest bank in the United States, even more colossal. While JPMorgan Chase is currently one of the few giant banks in the U.S. that hold over 10% of national deposits.
Under US's regulations, the bank was originally not eligible to acquire another bank, but the US authorities made an exception in this case. While as JPMorgan's size grows, it may face more legal examinations in the future in terms of regulations.
Regarding the macro aspect, the market is still closely monitoring the impact of the acquisition on this week's Federal Reserve interest rate decision. Some analysts point out that raising interest rates now has become a dilemma, as continuing to raise rates may worsen the banking crisis, but delaying rate hikes may not effectively curb inflation.
Currently, the inflation rate of 5% is still far higher than the Fed's target of 2%. While the annualized GDP growth rate in the United States in the first quarter of this year was only 1.1%, well below expectations, which is already a signal of an economic slowdown. As the tension in the US banking industry escalates, some investors believe that the Fed may need to soften its tone.
Larry McDonald
Founder of The Bear Traps Report
"The Fed's gonna basically have to really tone it down a lot, maybe, maybe project that this is the last hike, because anything they do on the hawkish side, will really cause much more financial instability."
The CME FedWatch Tool shows that there is a 38.5% probability that the Federal Reserve will cut rates to around 4.5% by December this year.
Some analysts also believe that the recent bank collapses reflect the widespread impact of this round of monetary tightening, and for every bank that fails, hundreds of small and medium-sized banks will adopt more conservative measures in the coming months. This may further tighten the credit environment.
Mark Calabria
Cato Institute
"The sector is overall gonna make it through, which is why I don't think this is systemic. But there's definitely six to 12, that are real problems, that half of them are not going to make it through this cycle."
Now the question that everyone is concerned about is whether the banking crisis is really over. Jamie Dimon, the CEO of JPMorgan Chase, stated that at least part of the crisis related to First Republic Bank has ended, but he also mentioned that the problem may persist if interest rates continue to rise. We will see how the U.S. banking crisis goes in the future.