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NEW YORK, May 2 (Reuters) - On March 12, as several U.S. banks reeled from a crisis in confidence, JPMorgan Chase & Co (JPM.N) put its might behind First Republic Bank, giving the troubled lender what two sources said was a $10 billion financing.
The JPMorgan facility did not stop depositors from fleeing the lender. But it turned out to be the start of a series of events - some details of which are reported here for the first time - that put JPMorgan and its chief executive, Jamie Dimon, in a pivotal role in one of the most extraordinary U.S. bank rescues of recent years.
JPMorgan bought First Republic on Monday in a government auction, culminating weeks of failed rescue attempts and aborted discussions involving some of the most powerful Wall Street executives and U.S. officials. The deal talks went down to the wire, according to two sources familiar with the situation. Four bidders, including JPMorgan, made it to the final rounds of the auction on Sunday night, one of the sources said.
JPMorgan did not know till about 1.15 a.m. in New York that it had won, even though final bids were initially due several hours prior. At one point late at night, as Dimon and other senior executives waited for the outcome of their bid, silence from Federal Deposit Insurance Corp (FDIC) made them think they had lost, one of the sources said.
The final deal, announced around 3:30 a.m., cements Dimon's reputation as one of Wall Street's most powerful bankers.
But the deal also raised fresh questions about the dangers of having banks that are too big to fail, the quality of regulatory oversight of the banking industry and the Biden administration's resolve to keep corporations from becoming too powerful through deals.
Piper Sandler analysts said more than the finances, the deal was significant for JPMorgan as it solidifies the bank "as the go-to industry leader in times of turmoil."
"The only worry we have is the at-present unknowable. JPM was already a hugely significant player that has now managed to make itself even more so at a time when 'too-big-to-fail' is still a political concern," they wrote.
Dimon pushed back against any suggestion that his bank is getting too big.
"We have capabilities to serve our clients, who can be cities, schools, hospitals, governments; we bank the IMF, the World Bank," the banker said in a conference call after the deal. "And anyone who thinks the United States should not have that can call me directly."
The FDIC said earlier on Monday the resolution involved a "highly competitive bidding process," and was the least costly alternative for its deposit insurance fund.
Reuters Graphics Reuters Graphics
BANKING CRISIS
First Republic was founded in 1985 by James "Jim" Herbert, son of a community banker in Ohio. The bank was bought by Merrill Lynch in 2007 right before the financial crisis. It became public again in 2010, after Merrill Lynch itself was bought by Bank of America Corp (BAC.N) and the new owner decided to dispose of it.
First Republic's attraction was its rich clients, and it gave them preferential rates on mortgages and loans. Its reliance on the rich also made it more vulnerable - it had a high level of uninsured deposits.
In early March, as a run on Silicon Valley Bank spooked depositors and investors, sending them into the arms of institutions they thought were safer, First Republic quickly became a target. It saw more than $100 billion fleeing in the first quarter, leaving it scrambling to raise money.
By the weekend of March 12, as regulators seized Silicon Valley Bank and Signature Bank and announced a series of emergency measures to shore up confidence in the system, First Republic said it had taken additional steps to access a total of $70 billion in funds, including from JPMorgan.
The assurance, however, failed to calm markets, and First Republic's stock fell again the following day.
Reuters could not determine when, but at some point JPMorgan's interest in First Republic grew to become more than its role as an adviser helping the bank bolster its finances. Part of its attraction: the lender's roster of wealthy individuals which would add to JPMorgan's own private banking franchise.
Prevailing wisdom at the time, however, suggested that regulators would not allow JPMorgan to buy another bank. JPMorgan holds more than 10% of the nation’s total bank deposits, and federal law prevents a large bank from an acquisition that would put it above that threshold. Acquisitions of failed banks can be exempted from the rule.
JPMorgan started a process internally, which looked at various options for First Republic, including an acquisition, according to a source familiar with the matter. The deal was internally code-named "Forest", the source said.
The bank kept the teams separate, the source said. First Republic also had Lazard Ltd (LAZ.N) as an adviser.
Reuters Graphics
TOP BIDDER
In March, a series of ideas were floated to save the bank. Dimon was among the power brokers that discussed a package by large banks to inject $30 billion in deposits. After that failed to improve confidence in the lender, Dimon was among bankers that met in Washington at a forum, where topics included aiming to work out details on what needed to be done. JPM proposed another idea that was briefly considered, of forming a consortium to buy the bank, two sources previously said.
A key hurdle to doing a private sector deal, however, was that there were billions of dollars of unrealized losses on First Republic's books, and they would have to be funded if anyone bought the bank.
As weeks progressed, regulators came close at least once in late April to pulling the plug on the bank, one of the sources said. The situation became worse last week after its shares went into a free fall following earnings.
By Friday, the FDIC decided the bank had run out of time to find a private solution, a source previously told Reuters. Advised by Guggenheim Securities, the regulator reached out to various potential bidders, including banks and private equity firms, to solicit offers, two sources familiar with the situation said.
By late Sunday the race had narrowed to four bidders, one source said. Besides JPMorgan, PNC Financial Services Group (PNC.N), Citizens Financial Group Inc (CFG.N) and Fifth Third Bancorp (FITB.O) were also in the auction, sources have said.
The auction dragged out through the night as the FDIC's advisors examined each bid on its merits, a source familiar with the matter said.
Each bidder put in bids for the whole bank as well as part of its assets, the source said, and the FDIC's advisors were looking for the one which would cost the least to the depository insurance fund.
JPMorgan deployed more than 800 employees to do due diligence on the bank. While the partial bids from the three other banks held some attraction in finding a solution for First Republic, none could top JPMorgan’s pitch to buy the whole bank, one of the sources said.
Reporting by Anirban Sen, Nupur Anand, Isla Binnie, David French, Saeed Azhar, Lananh Nguyen; Writing by Megan Davies; Editing by Paritosh Bansal and Stephen Coates
BP profits eased to $5bn (£4bn) in the first quarter of the year, but the rewards for shareholders are being stepped up.
Underlying replacement cost profit between January and March compared to $6.2bn in the same period last year but $4.8bn achieved in the previous three months.
The figure was $700m higher than financial analysts had forecast.
The company described it as a resilient result which reflected an "exceptional gas marketing and trading result, a lower level of refinery turnaround activity and a very strong oil trading result".
BP rewarded shareholders with a 6.6 cents per share dividend payment - up from 5.4 cents a year ago.
The sum was, however, static on the fourth quarter award and BP also scaled back the size of its recent share buybacks to $1.75bn.
BP revealed details on its current performance as the government continues to face pressure to raise windfall taxes on energy giants to better cover the costs of energy support schemes.
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Feb: BP boss defends UK tax contribution
BP paid just over $1bn under the energy profits levy for its North Sea activities in the final quarter of 2022.
It did not book a further charge between January and March as the sum reflected a "deferred tax impact...unwinding over the period", BP said.
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Labour argues the taxpayer should not be enduring so much of a burden for record household bills at a time when the likes of BP and Shell are benefiting from soaring prices linked to the war in Ukraine.
For its part, the government says it has to encourage continued investment in UK energy security.
Wholesale natural gas prices have tumbled from the record highs witnessed last year but remain elevated while oil costs are currently reflecting the slowdown in the global economy linked to the inflation problem.
BP said it expected oil and European gas prices to remain strong by historical standards in the current second quarter.
Its report, which was titled "performing while transforming" pointed to continued investment in its integrated energy strategy in both the UK and abroad.
In the North Sea, BP has signed an agreement to take a 40% stake in the Viking carbon capture and storage (CCS) project while three BP-led hydrogen and CCS projects in the North East have been chosen by the government to progress to the next stage of development
During your trial you will have complete digital access to FT.com with everything in both of our Standard Digital and Premium Digital packages.
Standard Digital includes access to a wealth of global news, analysis and expert opinion. Premium Digital includes access to our premier business column, Lex, as well as 15 curated newsletters covering key business themes with original, in-depth reporting. For a full comparison of Standard and Premium Digital, click here.
Change the plan you will roll onto at any time during your trial by visiting the “Settings & Account” section.
What happens at the end of my trial?
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For cost savings, you can change your plan at any time online in the “Settings & Account” section. If you’d like to retain your premium access and save 20%, you can opt to pay annually at the end of the trial.
You may also opt to downgrade to Standard Digital, a robust journalistic offering that fulfils many user’s needs. Compare Standard and Premium Digital here.
Any changes made can be done at any time and will become effective at the end of the trial period, allowing you to retain full access for 4 weeks, even if you downgrade or cancel.
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Food prices increased by a record annual rate of 15.7% last month as pressure continues to mount on household finances.
Fresh food prices saw a record jump of 17.8% year-on-year for April, while the price of ambient products, such as tinned goods and other store-cupboard items, went up 12.9%.
According to the latest BRC-NielsenIQ shop price index, shop prices went up 8.8% last month compared to the same period in the previous year.
This figure was slightly down from 8.9% in March and followed spring discounting at fashion and furniture stores.
It came as non-food stores recorded inflation of 5.5% for the month, slipping from 5.9% in March as shops reduced prices in a bid to attract customers.
Helen Dickinson, chief executive of the British Retail Consortium, said: "Overall shop price inflation eased slightly in April due to heavy spring discounting in clothing, footwear and furniture.
"However, food prices remained elevated given ongoing cost pressures throughout the supply chain.
"The knock-on effect from increased production and packaging costs meant that ready meals became more expensive and coffee prices were also up due to the high cost of coffee beans, as well as key producer nations exporting less.
"Meanwhile, the price of butter and vegetable oils started to come down as retailers passed on cost savings from further up the supply chain."
Mike Watkins, head of retailer and business insight at NielsenIQ, said: "In recent weeks, more retailers have used loyalty schemes or money off promotions to help stimulate sales.
"However, with inflation yet to peak and sales volumes in decline in many channels, it's difficult to second guess the strength of consumer confidence."
But Helen Dickinson, chief executive of the BRC, said customers should "start to see food prices come down in the coming months as the cut to wholesale prices and other cost pressures filter through".
She said that retailers were "committed to helping their customers and keeping prices as low as possible".
Many households have felt the impact of rising food bills. Due to cost pressures, major consumer goods companies and supermarkets have pushed up prices, but have denied "profiteering".
While overall food inflation rose in the year to April, according to the figures from the BRC-NielsenIQ shop price index, fresh food prices accelerated last month to 17.8%.
Ms Dickinson said some goods, such as ready meals, had risen in price because of a "knock-on effect from increased production and packaging costs".
She added the price of coffee had jumped because of an increase in the cost of coffee beans, as well as key producers exporting less.
However, she said the price of select items like butter or vegetable oils had already started to come down as retailers passed on some savings.
Wholesale food prices have started to fall and the World Bank, which works on solutions to reduce poverty in developing countries, has said it expects them to drop 8% by the end of this year.
But supermarkets have argued such falls take time to reach the shelves. The BRC has said there is a three- to nine-month lag to see a decrease in wholesale prices reflected in-store.
In March, the union Unite accused some retailers of "fuelling inflation by excessive profiteering".
The boss of Sainsbury's said the supermarket would pass on any falls in the price of goods as soon as it could and was "absolutely determined to battle inflation for our customers".
However, Simon Roberts admitted widespread price falls were not likely to come soon as energy and labour costs continued to rise.
While overall food prices continued to rise in April, the BRC said inflation, which is the rate at which prices rise, both food and non-food, had fallen marginally to 8.8% in April.
But just because the inflation rate has fallen, that does not mean prices are falling, it just means that prices are not rising as quickly.
The BRC said overall price rises in the shops had slowed slightly in April because of "heavy spring discounting in clothing, footwear, and furniture".
JP Morgan Chase is set to take over the troubled US bank First Republic in a deal brokered by regulators.
The Federal Deposit Insurance Corporation (FDIC) confirmed in a statement that First Republic Bank had collapsed on Monday.
Investment banking giant JP Morgan will take on all of the deposits and the majority of First Republic's assets.
First Republic is the third US bank to collapse in recent months, which has prompted fears of wider banking crisis.
The San Francisco-based lender's shares fell by more than 75% last week after it admitted that customers had withdrawn $100bn (£79.6bn) of deposits in March.
It follows on from the collapse of Silicon Valley Bank (SVB) in March and the demise of another US lender, Signature Bank.
In a scramble to come up with a rescue package for First Republic, US officials were understood to have contacted six banks, according to news agency AFP.
Jamie Dimon, chief executive of JP Morgan Chase said the government had "invited" the banking giant, along with others, to "step up, and we did".
He added that the acquisition would "modestly benefit" the firm and would be "complementary" to the existing business.
JP Morgan will take on $173bn of loans, about $30bn of securities and $92bn of deposits from First Republic, it said in a statement.
As part of the agreement, the FDIC will share losses on loans with the JP Morgan. It has estimated that its insurance fund would take a hit of about $13bn in the deal.
The failed bank's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday after regulators seized control and immediately sold to the Wall Street institution.
A deposit flight from some lenders in recent months has forced the Federal Reserve, the US central bank, to step in with emergency measures to stabilise financial markets.
In March, a group of America's biggest banks stepped forward to pump $30bn into First Republic in a bid to stabilise the business, but the efforts proved futile.
Founded in 1985, First Republic is a mid-sized US lender, similar to Silicon Valley Bank. For years, it has catered to wealthy clients - whose money was at risk before the deal was announced after a weekend of negotiations.
When Silicon Valley Bank and Signature collapsed, the FDIC said it would guarantee all deposits to prevent a rush of people trying to get their money out, which is known as a run on a bank.
In Europe, banking giant Credit Suisse was bought by rival UBS in March, in a deal orchestrated by Swiss authorities.
As central banks around the world raised interest rates aggressively to dampen the rate of price rises, known as inflation, some lenders have come under pressure.
Increased interest rates have hurt the values of the large portfolios of bonds bought by banks when rates were lower.
But the current situation doesn't appear to be a repeat of the 2008 financial crisis as there isn't the same system-wide problem, when banks around the world suddenly found they were exposed to rotten investments in the US housing market.
That led to enormous government bailouts and a global economic recession.
