JPMorgan Chase & Co. is bullish on the opportunities to come from its acquisition of the deposits and most of the assets of First Republic Bank — a deal that Chairman and CEO Jamie Dimon said marks the end of the liquidity crunch in the US.
Like First Republic, some regional banks experienced deposit outflows following the collapse of Silicon Valley Bank and Signature Bank in early March. But outflows at regional banks have largely stabilized, Dimon said.
"There may be another smaller one, but this pretty much resolves them all. This part of the crisis is over," he said. "Down the road, there are rates going way up, real estate, recession, that's a whole different issue. But for now, everyone should just take a deep breath."
Speaking on a media call prior to the deal call, Dimon said this deal will help "stabilize the system."
New York-based JPMorgan is particularly excited about the chance to bolster its wealth management arm with First Republic's high-net-worth client base across its footprint in affluent markets, executives said during a deal call.
"My experience has always been when you do an acquisition, there are some things the other side does really well and you should learn from that," Dimon said. "This gives us a kind of an opportunity to look at how we deal with high-net-worth clients. ... We hope to learn a lot from that."
The company says it can retain First Republic's wealth management staff, because a number of advisory teams have reached out to JPMorgan in the past few weeks, which is "encouraging" for retention prospects, CFO Jeremy Barnum said.
There is also an opportunity to win back the deposits that have fled First Republic in recent weeks, but JPMorgan was "conservative" in its modeling assumptions, executives said.
"Obviously, there are open questions about deposit retention," Barnum said. "We are very eager and we're going to fight hard to keep all the clients. We welcome any clients that left to come back. But this is an uncertain situation."
JPMorgan acquired roughly $92.0 billion in deposits, down from First Republic's $104.5 billion in deposits at March 31 and $176.4 billion at Dec. 31, 2022.
JPMorgan won out in a "competitive" bid process after the FDIC began seeking buyers, Barnum said. Typically, the largest US banks are precluded from traditional bank M&A because of a rule prohibiting any single bank from holding more than 10% of all deposits in the country. However, that rule is typically waived in failed bank deals, executives said.
"The [Federal Deposit Insurance Corp.] is truly about minimizing the cost to the [Deposit Insurance Fund]," Dimon said. "The OCC decides about the cap. But the cap, I think, has always been given up in deals like this for the sake of the system."
JPMorgan was involved in efforts to keep First Republic afloat in recent weeks, including being part of a consortium of large banks that deposited $30 billion in the San Francisco-based bank in mid-March.
"The goal there primarily was to buy time during a moment where time was needed," Barnum said on the media call. "Of course we would've loved to see an open bank solution, but that wasn't ultimately possible."
Also on the media call, Dimon said multiple banks looked at First Republic in recent weeks, but they couldn't get a deal done.
"It was left open to be an open bank deal. A lot of people looked at it. The banks put in $30 billion to give it the time," he said. "The whole world knew it was available and no one bought it."
On the deal call, Dimon also addressed the potential for increased regulation following the recent bank failures.
"Obviously, there should be some changes made about held to maturity, disclosure around interest rate exposure, uninsured deposit percentage," he said. "But I think they should do that intelligently because what you want to do is have a healthier, strong and competitive regional bank and community bank system. If they don't do that intelligently, you make it much harder to be a community bank or regional bank. You can do things that create a lot of security without creating additional unnecessary burden."