Hours after JPMorgan Chase & Co. agreed to buy First Republic Inc., attendees of the Milken Institute Global Conference in California started the day huddled under a covered pavilion as rain leaked in.
(Bloomberg) — Hours after JPMorgan Chase & Co. agreed to buy First Republic Inc., attendees of the Milken Institute Global Conference in California started the day huddled under a covered pavilion as rain leaked in.
In the Wilshire Garden area, lined with lush greenery and astroturf, the droplets pattered off the tented covering overhead and onto the stage as guests spooned up breakfast parfaits and began to listen to the day’s programming. At one of the early panels, Citigroup Inc. Chief Executive Officer Jane Fraser praised the “solid structure” of the financial system and said First Republic’s sale removed a major source of uncertainty.
Among the bankers and dealmakers mingling on the sidelines, the reactions as the day unfolded were more mixed. For some, First Republic’s sale represented the climax to a two-month saga that engulfed a few regional lenders. For others, anxieties over a persistent crisis — and fears over cascading problems in commercial real estate — were creeping in like the unusually gray skies clouding Beverly Hills.
Banking industry executives characterized the deal as stabilizing. “Resilience is the word of the year,” said Jayee Koffey, global head of enterprise execution and chief corporate affairs officer of BNY Mellon Corp. Her company was one of the firms that participated in the $30 billion cash infusion for First Republic as it was teetering in March — a move she said was “the necessary thing to do.”
Still, she pointed to the need for regulators to dig into what happened. “We need to make sure the root causes are understood,” Koffey said in an interview.
First Republic was seized by regulators in the second-largest bank failure in US history — the fourth regional lender to collapse since early March. JPMorgan agreed to the takeover after private rescue efforts failed to fill a hole in the San Francisco-based lender’s balance sheet and customers yanked their deposits.
The reaction to the takeover was very different from the March collapse of Silicon Valley Bank, which triggered widespread turmoil, Joe Zhao, a managing partner at venture fund Millennia Capital, said in an interview at the Milken conference. With First Republic’s stock plunging for weeks, many venture capitalists and startups have opened up multiple bank accounts and gravitated toward fintech banking companies, some of which offer insurance on deposits above the FDIC’s $250,000 limit, Zhao said.
“Most VCs and tech entrepreneurs are already prepared for it,” he said.
Ashley Walker, managing director in the equity capital markets group at Jefferies Financial Group Inc., said the passage of time after the collapse of Silicon Valley Bank helped limit the shock waves to the market.
“People feel like these are isolated events as opposed to a systemic risk,” she said.
Still, the First Republic deal was taking up a lot of attention inside the Beverly Hilton, where there was so little seating that many attendees were sitting on hallway floors, or standing and eating lunch bento boxes of salmon and rice.
For Steven McClurg, chief investment officer of Valkyrie Investments, the deal had a personal effect: He had his own accounts at First Republic, having switched to the bank from Chase three years ago. Now, he’s back to where he started.
“First Republic Bank had zero fees, actually a very high interest rate on all your deposits and just a much more attractive offering and private bankers that were always at your beck and call, whereas Chase is very commercialized, very bureaucratic,” he said.
Other attendees took a more cautious tone. Andrew Milgram, chief investment officer of Marblegate Asset Management, said on a panel that banks aren’t being transparent enough, particularly around loan books. He said it’s prudent to increase scrutiny on lenders, which will in turn increase cost of capital and lead more companies to sell assets — a potential opportunity for distressed-investment firms.
Stephen Meade, an entrepreneur who goes by The BullsEye Guy, was more blunt: “It’s not over.” The banks that have toppled were taken down by their bond portfolios, and that will continue to weaken at more regional players that remain with similar balance sheets, he said, sipping an iced cappuccino. “The collapse is only over if you think the interest rates are going down, and they’re not.”
For Milken attendees truly stressed by the banking chaos, a puppy play pen offered a chance for a reprieve. The sign outside: “The best kind of tail risk.”
–With assistance from Allison McNeely.
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