JP Morgan's Jamie Dimon, Who Regretted the "Costly Lesson," Returns as Wall Street's Savior Again

"America's largest bank has grown even bigger." On the 1st (local time), JP Morgan Chase, the largest bank in the United States, acquired the failed First Republic Bank, once again asserting its presence as the 'rescuer' in the banking crisis. Jamie Dimon, chairman of JP Morgan, known as the 'Emperor of Wall Street,' evaluated that the recent banking sector crisis has almost come to an end with this acquisition. Concerned that the crisis might spread throughout the financial system, U.S. authorities supported JP Morgan's acquisition of First Republic by making exceptions under current laws.

[Image source=Reuters Yonhap News]

According to the Wall Street Journal (WSJ) and others, after the announcement of the First Republic acquisition, Chairman Dimon said during an analyst call, "There may be more issues in smaller banks, but this acquisition has resolved almost all problems," adding, "This part of the crisis is over." This is an assessment that the banking crisis triggered by the collapse of Silicon Valley Bank (SVB) in March has largely been settled.

Earlier, the California Department of Financial Protection and Innovation (DFPI) closed First Republic in the early morning of the same day. Additionally, the Federal Deposit Insurance Corporation (FDIC), appointed as the bankruptcy trustee, announced that JP Morgan would acquire all deposits and most assets of First Republic. Accordingly, all 84 First Republic branches in the U.S. reopened as JP Morgan Chase bank branches from that day.

[Image source=Reuters Yonhap News]

At the forefront of this acquisition decision is Jamie Dimon, the 'Emperor of Wall Street.' In a statement shortly after, Dimon said, "The government encouraged us and other companies to step up, and we did," adding, "Through our financial soundness, capabilities, and business model, we were able to conduct a bidding process to execute the deal in a way that minimizes the cost to the deposit insurance fund."

This is not the first time JP Morgan has acted as a rescuer in a banking crisis. A representative example is John Pierpont Morgan, the founder of JP Morgan, who stepped in as a problem solver during the financial panic of 1907. At that time, with no central bank in existence, a bank run caused panic in the financial markets, and Pierpont Morgan took on the role of a private lender and led negotiations among other banks.

Similarly, after Jamie Dimon became CEO of JP Morgan, he played a significant role in alleviating concerns about the U.S. financial system by acquiring Bear Stearns and Washington Mutual, which were on the brink of bankruptcy during the 2008 global financial crisis. Following the collapse of SVB in March, Dimon was also the figure who, after receiving a call from U.S. Treasury Secretary Janet Yellen, led 11 major U.S. banks to provide $30 billion in support to First Republic, which was engulfed in crisis rumors.

The bankruptcy of First Republic is the second largest in U.S. history, excluding investment banks like Lehman Brothers, following Washington Mutual, which collapsed during the 2008 financial crisis. The Wall Street Journal (WSJ) reported, "This acquisition prevented a chaotic collapse," and noted that "JP Morgan effectively owns both the largest bankruptcies, Washington Mutual and First Republic." For JP Morgan, it appears that they decided to acquire First Republic, which is larger than SVB, judging that its bankruptcy would have a significant negative impact on the industry as a whole. Some JP Morgan executives reportedly headed directly to California, where First Republic's headquarters is located, on the same day.

On the other hand, the market has raised questions about whether JP Morgan truly took on a burden by itself. WSJ highlighted in a separate article that Dimon has occasionally expressed regrets about acquisitions such as Bear Stearns and Washington Mutual during the global financial crisis. While these acquisitions prevented a larger crisis at the financial market level, JP Morgan had no choice but to bear long-term legal disputes and billions of dollars in additional costs, according to the outlet's analysis.

In a 2014 report and annual shareholder letter to investors, Dimon stated, "We will never do something like the Bear Stearns acquisition again," adding, "In fact, the board would probably not accept such a proposal." He also argued, "The Washington Mutual deal may still be reasonable, but considering ongoing legal uncertainties, it should have been at a lower price." Furthermore, he described these acquisition decisions as "There are expensive lessons that I will not forget."

However, after the announcement of JP Morgan's acquisition of First Republic, Dimon showed a different tone in a call with reporters. When asked about his past remarks, he replied, "I don't like crying over spilled milk, but sometimes I do," adding, "I was quite angry about the additional costs."

On the same day, Dimon also drew a line, stating that the bankruptcy of First Republic did not increase the risk of a U.S. economic recession. This contrasts with his warnings just over a month ago that the SVB incident could heighten recession concerns. In his annual shareholder letter last month, he expressed concern that "the crisis cannot yet be considered over," and "even if it has passed, there will be adverse effects for years to come." He also assessed that this incident has increased the possibility of a recession due to market instability and tightening financial conditions.

First Republic, ranked 14th among U.S. banks, had been plagued by crisis rumors since the collapse of SVB in March. Like SVB, it had many deposits not protected by deposit insurance and was exposed to low-interest loans. Particularly, during last week's earnings announcement, it was revealed that over $100 billion in deposits had been withdrawn in the first quarter alone, intensifying fears surrounding the bank. When the stock price plummeted 98% from around $120 in early March, authorities judged that First Republic's recovery was unlikely and decided to intervene.

Major foreign media emphasized that financial authorities took a markedly different approach in dealing with the turmoil caused by First Republic compared to SVB. When SVB collapsed in March, the FDIC closed the bank before finding a potential acquirer, making market turmoil inevitable until the acquisition decision was made. However, this time, they quickly found an acquirer first.

Moreover, authorities made an exception to the current law that prohibits banks holding more than 10% of deposits in the U.S. from acquiring other banks. The emergency measures announced early that day, before the U.S. stock market and banking operations began, were also aimed at minimizing the impact on the market. A U.S. Treasury Department spokesperson said regarding JP Morgan Chase's acquisition, "The Treasury is encouraged that this institution (First Republic) was resolved in a way that protects all depositors and imposes the least cost on the deposit insurance fund."

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