Two from Wall Street on Parade. First up the headliner, April 26:
The Board of Directors and shareholders at the largest bank in the U.S., JPMorgan Chase – which has more than 5,000 Chase Bank branches dotting the landscape from coast to coast – have ample reason to ask themselves where the loyalties of the bank’s Chairman and CEO Jamie Dimon exactly lie.
Dimon, who has come under withering negative publicity for the bank’s many years of catering to the cash payoff needs of child sex trafficker Jeffrey Epstein, had an urgent incentive to want to change the subject. So a media blitz ensued around his role as rescuer of the sinking carcass of a much smaller bank, First Republic Bank – which has its own dubious distinction of being the bank that wired the hush money to porn star Stormy Daniels by Trump attorney, Michael Cohen.
For just how broadly Dimon’s “rescue” of First Republic Bank has been reported, scroll down at this link. Only someone living off the grid or in a coma did not hear that Jamie Dimon was riding to the rescue of First Republic Bank.
But as early as Tuesday, March 28, during a Senate Banking hearing, it became clear that when First Republic finally got around to updating the public on the severity of its distressed situation (which it finally did on Monday in a 12-minute earnings call that took no questions from anyone), the news was going to be devastating to the bank.
At the Senate Banking hearing, the Vice Chairman for Supervision at the Fed, Michael Barr, explained just how fast deposits can evaporate from a bank in the new digital age, especially when tens of billions of dollars of those deposits exceed the FDIC insurance cap of $250,000 per depositor, per bank. Barr told the Senators that in the case of Silicon Valley Bank, $42 billion in deposits had left the bank on Thursday, March 9, and bank customers had queued up $100 billion more to exit the following day. Silicon Valley Bank did not have adequate collateral to post at the Fed to borrow funds to meet that $100 billion in withdrawals, thus the bank was put into FDIC receivership on March 10.
No depositor has ever lost a dime of deposits in an FDIC-insured bank if they have kept those deposits in FDIC-insured accounts and within that $250,000 FDIC cap.
Both Silicon Valley Bank and First Republic Bank are California-headquartered regional banks. The contagion from Silicon Valley Bank had directly impacted First Republic Bank. By the date of that Senate Banking hearing on March 28, First Republic’s common stock had lost 90 percent of its market value – just in the month of March.
It might be possible to come back from that if one is a start-up tech firm, or an acknowledged high-risk innovator. But Americans put their money in federally-insured banks because they want safety; because they want the peace of mind of knowing their deposits will be protected despite what happens in the Wall Street casino on any given day. In that vein, Jamie Dimon was the worst possible choice to head up a rescue of First Republic Bank as he is the personification of what happens when a trading casino is allowed to own the largest federally-insured bank in America. Under Dimon’s tenure at the helm of JPMorgan Chase, it has been charged with losing $6.2 billion of depositors’ money by gambling in derivatives in London; its precious metals traders have been charged under RICO – the statute used to prosecute the mob; it has received an unprecedented five felony counts from the U.S. Department of Justice, including aiding and abetting the largest Ponzi scheme in history by Bernie Madoff, and on and on.
But Jamie Dimon has a legion of public relations flacks shaping his image as a titan of Wall Street wisdom and he has clearly gotten high on his own p.r. supply. So Dimon cajoled three other mega banks on Wall Street to join his bank and dump $5 billion each of uninsured deposits into First Republic Bank on March 16. Those banks were Bank of America, Citigroup and Wells Fargo. In addition, Morgan Stanley and Goldman Sachs deposited $2.5 billion each; while BNY Mellon, State Street, PNC Bank, Truist and US Bank each deposited $1 billion, bringing the total infusion to $30 billion.
In addition, according to First Republic, JPMorgan Chase had also provided a line of credit to the bank. Multiple media outlets also reported that JPMorgan Chase and Lazard were advisors to First Republic Bank on its options going forward. (See here and here.)....
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And April 27:
Banks that Put Up $30 Billion to “Rescue” First Republic May Have Been Trying to Rescue their Own Exposure to $247 Trillion in Derivatives
Ever since 11 banks on March 16 donned the garb of heroic fire fighters, rushing to extinguish an inferno at a competitor bank before it spread further, we have been asking ourselves the question – why just this group of 11 banks.
We’re talking about the action on March 16 when 11 banks chipped in a total of $30 billion and bizarrely placed those funds as uninsured deposits into First Republic Bank – which was in full scale unraveling mode because of bond losses and – wait for it – too many uninsured deposits. Four banks contributed two-thirds of the total deposits with JPMorgan Chase, Bank of America, Citigroup and Wells Fargo ponying up $5 billion each. Morgan Stanley and Goldman Sachs deposited $2.5 billion each; while BNY Mellon, State Street, PNC Bank, Truist and U.S. Bank each deposited $1 billion, together making up the other one-third of the $30 billion.
According to the Federal Deposit Insurance Corporation, as of December 31, 2022 there were 4,706 federally-insured commercial banks and savings associations in the U.S. The 11 banks rushing to “rescue” First Republic Bank represent less than a fraction of one percent of the total banks.
Banking in the U.S. is not particularly regarded as an altruistic industry. In fact, it frequently resembles a blood sport. So why this uncanny display of generosity to a competitor and why were just these 11 banks involved?
Yesterday, we had an epiphany. We pulled up the most recent table from the Office of the Comptroller of the Currency showing the 25 bank holding companies that have the largest exposure to derivatives. Sure enough, each of those 11 banks is on the list. (See page 19 at this link.) The data is as of December 31, 2022.
Equally noteworthy, the four banks that chipped in the giant sums of $5 billion each, control 58 percent of the total $247 trillion notional (face amount) in derivatives controlled by all 25 banks.
And if that wasn’t already plenty to raise one’s blood pressure, for many of these banks the dollar amount of derivatives is exponentially more than the total assets of the bank holding company. For example, SMBC Americas Holdings, Inc. has $34.6 billion in assets and $10.3 trillion in derivatives. (You can’t make this stuff up.)
It also caught our eye that three of the 25 banks on this list had their credit ratings impacted by the big action taken by Moody’s on April 21 when it downgraded the credit ratings of 11 banks on that date and put five more on negative watch. (See chart below.)
So let’s look back a little further at what was going on in terms of credit ratings during the two days just preceding that $30 billion display of goodwill toward First Republic Bank....
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