Posted on 05/02/2023 7:02:24 AM PDT by Red Badger
Yes, you read the headline correctly. Collectively, the three big banks that have collapsed in 2023 had more assets than all 25 banks that collapsed in 2008 did. Unfortunately, the banking collapse of 2023 is far from over. We still have eight more months to go before this year is done, and many more banks are currently teetering on the brink of disaster.
Executives at those banks are telling us not to worry, but of course executives at First Republic were issuing similar assurances just last week. Personally, I had heard that First Republic supposedly had enough reserves to keep going for months. But that was a lie, and now First Republic is toast.
The following 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 protect depositors, the FDIC is entering into a purchase and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all of the deposits and substantially all of the assets of First Republic Bank.
JPMorgan Chase Bank, National Association submitted a bid for all of First Republic Bank’s deposits. As 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 become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.
The government was not going to allow just anyone to snap up the assets of First Republic.
JPMorgan Chase was one of the institutions that was invited to make a bid, and they came out of this process as the big winners…
JPMorgan is getting about $92 billion in deposits in the deal, which includes the $30 billion that it and other large banks put into First Republic last month. The bank is taking on $173 billion in loans and $30 billion in securities as well.
The Federal Deposit Insurance Corporation agreed to absorb most of the losses on mortgages and commercial loans that JPMorgan is getting, and also provided it with a $50 billion credit line.
In addition to providing JPMorgan Chase with a 50 billion dollar credit line, the FDIC will also take a loss on this deal of approximately 13 billion dollars.
So they are definitely one of the big losers in this deal…
The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. This is an estimate and the final cost will be determined when the FDIC terminates the receivership.
Needless to say, the biggest losers of all are the shareholders of First Republic.
They got completely wiped out…
Stockholders got bailed in and wiped out. They’d already been mostly wiped out by Friday evening in one of the most spectacular stock plunges ever.
Holders of the unsecured subordinated bank notes got bailed in and wiped out just about entirely. This is a form of preferred stock. For example, the 4.625% bank notes, issued in 2017, traded at less than 2 cents on the dollar this morning, another spectacular plunge.
As I have always warned, you only make money in the stock market if 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 part of the crisis is over”…
“There are only so many banks that were offsides this way,” Dimon told analysts in a call shortly after the deal was announced.
“There may be another smaller one, but this pretty much resolves them all,” Dimon said. “This part of the crisis is over.”
And the U.S. Treasury is telling us that the U.S. banking system “remains sound and resilient”…
‘The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability 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 feel better?
It shouldn’t.
They always offer such platitudes before things start getting really bad.
As I noted at the beginning of this article, the three banks that have collapsed so far this year were collectively bigger than all of the banks that collapsed in 2008 combined…
The three banks held a combined total of $532 billion in assets, which – according to the New York Times and when adjusted for inflation – is more than the $526 billion held by all the US banks that collapsed in 2008 at the peak of the financial crisis.
We are only one-third of the way through 2023.
And as Charlie Munger recently observed, many of our banks are absolutely packed with “bad loans” right now…
Charlie Munger believes there is trouble ahead for the U.S. commercial property market.
The 99-year-old investor told the Financial Times that U.S. banks are packed with “bad loans” that will be vulnerable as “bad times come” and property prices fall.
He is quite correct.
In particular, the collapse of commercial real estate prices threatens to create a massive tsunami of defaults…
Berkshire Hathaway, where Munger serves as vice chairman, has largely stayed on the fringe of the crisis despite its history of supporting American banks through times of turmoil. Munger, who is also Warren Buffett’s longtime investment partner, suggested that Berkshire’s restraint is partially due to risks that could emerge from banks’ numerous commercial property loans.
“A lot of real estate isn’t so good anymore,” Munger said. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.”
As I keep telling my readers, we really are on the verge of the largest commercial real estate crash in all of U.S. history.
And as mountains of commercial real estate loans go bad, a lot more banks will start to go under.
The “too big to fail” banks will scoop up those that they like, while others are simply liquidated and go out of existence.
Ultimately, I believe that we are going to see a wave of consolidation in the banking industry like we never have before. We are still only in the very early chapters of this crisis. Much worse is yet to come.
It is going to take a while for all the dominoes to fall, but each time another one tumbles over it will be a sign that the clock is ticking and that time is running out for the U.S. financial system.
Are they still Too Big to fail?
All we ever seem to do these past thirty years is kick cans down the road...
And it’s just starting. Thank you very much to the radical Democrats.
The Fed is playing a dangerous game.
They get one bank, JP Morgan Chase in this instance, to ‘buy’ the failed bank(s) that pop up.
That does not ‘fix’ the problem, it merely take sit off the front pages and TV screens of America, and John Q. Public thinks ‘All is well!’.
But it’s not.
They have simply taken a poison pill and put it into a healthy bank.
The bad loans that the failed bank made are still there, the depositors’ and investors money is still gone, and the Government is still on the hook................
Whoa!!!! Remember what happened to W and the GOP in 2008 because of the financial crisis and all of the laws that were ushered in its wake to prevent the excesses of greedy Republicants and their billionaire buddies?
2023 can’t be worse ...it has to be fake news ... FJB is in office, these are the good old days, and once MAGA is eliminated, another 1000 J6ers are hauled to DC jails to wait their turns, and Trump is no longer viable, things will be even better. /S
Yes and, more so, No
This is not a “bad loan” problem, this is a “market price of good loan has declined due to yield curve move” problem.
In normal times banks like First Republic would not have failed, yes they made some bad decisions buy purchasing long term bonds that plummeted in value as interest rates have risen, but a lot of this banking failure is planned IMO, to consolidate banking into 4-6 large banks that more easily controllable and ushering in a CBDC.
Less than 1 year ago First Republic stock was worth more than $170/share, a couple of days ago it was below $3/share.
This is the game, the business channels and media start talking about banks that are vulnerable to interest rate rises, First Republic gets mentioned, depositors get nervous and start withdrawing their money, that gets reported and the run continues, the value of the bank goes to near Zero, the big banks wait until the bank fails, the government seizes the bank and sells the good parts to the big bank, the bad parts get absorbed into the FDIC and Federal Reserve aka on the backs of the taxpayers, basically privatizing the profits and socializing the loses.
Look for this to happen again in the next 1-2 weeks, another bank will be in trouble after rumors begin to float, the run will start and the bank will fail, forcing more consolidation.
All the banking BS is by design and on purpose just like the Covid jab and booster genocide. The Black Hats had the jabs and boosters BEFORE Covid. Anyone doubting that, do your research. We’re being lied to and played 24/7. We’re also living in 24/7 psyops in the current WWIII no one is talking about. Never Again is Here Again.
Ask yourselves why the US Congress has not stopped the poison Covid jabs and boosters that are murdering and maiming millions when the data and proof have been available for the past three years. How many politicians in office are guilty of massive corruption and treason?
“I’m from the government, and I’m here to help you.” Ronald Reagan: “The top 9 most terrifying words in the English Language”.
So it is time to continue to execute a plan that reduces my exposure to the follies of “the bank”. Green pieces of paper to cover short term failure. Hard assets to cover an extended outage. The balance into safer assets. Achieve zero debt, which reduces the expense on interest to the lenders. I remember COVID-19 shutdown well. I remember 2008, too.
Couple the bank news with the news that Social Security is only good for another 10 years, and Medicare a little longer — it’s going to be an interesting roller coaster ride.
Biden and the Democrats want to play “Chicken” with the debt ceiling, want to keep spending at ruinous rates and covering the shortfall with higher debt and higher taxes. I wonder when the United States will declare bankruptcy?
Most commercial real estate (especially office buildings and shopping malls) was junk before the interest rates went up—now it is toxic junk.
“Are they still Too Big to fail?”
Could the question be ‘Are WE too big to fail?’ because we taxpayers are the ultimate bailer-outers.
I hope the writer took into account that our currency is now Zimbabwean Terradollars, not the dollars of 2008.
Very Different today.
2008 was an election year with a Uniparty Republican in the WH.
2023 is not an election year and a Democrat anointed by the gods in Washington is in the WH.
do not be alarmed
they are still in the destruction stage of
build back better
Silicon Valley Bank and First Republic Bank didn’t fail because of their exposure to “bad loans.” They failed because they held billions of dollars in long-term bonds in their reserves, and they had to sell those reserves at a huge loss (due to rising interest rates) when their depositors began pulling all their money out of the banks.
A long-term bond is essentially a ‘loan’ to the bond issuer.
If interest rates rise, you are screwed..............
Looks like Pac West is the next bank that gets absorbed into a too big to fail Wall Street Bank
Cue the ‘JAWS’ theme.......................
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