- Jeopardizing an Economic Lifeline for Ukraine
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- Fed Set to Raise Interest Rates to 16-Year High and Debate a Pause
- Here’s What Treasury, Fed Might Do in a Debt Ceiling Crisis
- Morgan Stanley’s Wilson Says Hawkish Fed Could Damp Stock Rally
- JPMorgan to Acquire Failed Regional Bank First Republic
- U.S. Treasury Encouraged by First Republic Resolution, Says Banking System Remains Sound
- Bank Failures, Broken Markets Loom Over Milken’s Capitalist Utopia
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- The Subtle Strategy Behind Elon Musk’s Price Cuts at Tesla
- Indeed’s Price Changes Leave Small Businesses Feeling Burned
- Adidas Targets Basketball, Soccer to Drive Post-Yeezy Rebound
- Writers, Seeking Pay Change for the Streaming Era, Prepare to Strike
- ESPN’s Jimmy Pitaro Will Decide the Fate of Cable Television
Todays Open Interest Change
Regulators have taken possession of First Republic Bank (NYSE:FRC), resulting in the third failure of an American regional bank since the collapse of Silicon Valley Bank (OTC:SIVBQ) and Signature Bank (OTC:SBNY) in March. The Federal Deposit Insurance Corporation has been appointed as receiver and accepted a bid from JPMorgan (NYSE:JPM) to assume all deposits, including all uninsured deposits, and substantially all assets of First Republic Bank. That includes $173B in loans and about $30B of securities, though it will not assume First Republic's corporate debt or preferred stock. Premarket movement: FRC -43.3% to $1.99/share; JPM +2.7% to $142/share.
Fine print: "Our government invited us and others to step up, and we did," said JPMorgan CEO Jamie Dimon. "Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the deposit insurance fund" (which is estimated at about $13B). The FDIC will also enter into a loss-sharing agreement with JPMorgan on single family, residential and commercial loans, and provide $50B in financing to the bank. Meanwhile, JPMorgan is set to realize a one-time $2.6B gain from the deal, but expects to spend $2B on restructuring costs over the next 18 months.
It's been a wild ride for First Republic, which has teetered on the brink of failure for nearly two months. The bank's business model, which funded cheap mortgages to wealthy clients from little or zero-interest deposits, got hammered when rates rose rapidly. Clients then panicked and major paper losses ensued for its long-dated assets. Last week, First Republic revealed that deposit outflows totaled $70B in Q1, and put the spotlight on Wall Street institutions that deposited $30B at the bank on March 16 to stave off additional fallout to the industry.
Outlook: Is this the closing chapter of the banking turmoil that started in March, or just the next phase in the crisis? SA Investing Group Leader Lance Roberts discusses how things will end, Mott Capital Management explores the impact on rates, while contributor Bill Kort examines how flight-to-safety trades have played out since the turmoil. Other ongoing and systematic concerns are whether the nation's largest banks are getting even bigger, and how the tightening of the current lending environment will translate to the real economy. (103 comments)
"Whether or not you subscribe to Wall Street's adage 'sell in May and go away,' it’s nearly impossible to time the market, but you can identify stocks with strong fundamentals," writes Steve Cress, Head of Quantitative Strategies at Seeking Alpha. If the market retreats, he recommends buying these three stocks, which are in sectors that have historically performed well during summer and possess solid metrics that can be viewed as an opportunity to buy on overall market weakness. Debunking a longer-term trend, nine out of the last ten years have delivered positive returns between May 1st through October 31st, but will it happen again this year? Size up the sentiment with Wall Street Breakfast's latest poll to see if a pivot to safer sectors is warranted.
Take the survey and see the results here
In a show of unity, as Ukraine plans a major counter-offensive against Russia, a deal has been reached that would allow the transit of Ukrainian grain to resume through five neighboring EU countries. Restrictions were imposed by Poland and Hungary, as well as Romania, Bulgaria and Slovakia, after much of the produce ended up in their local markets and crashed prices for local farmers. Not many details of the agreement have been revealed, but it covers wheat, maize, rapeseed and sunflower seeds, and includes a financial support package worth €100M for farmers. "I welcome the agreement in principle," tweeted European Commission President Ursula von der Leyen, adding that it "preserves both Ukraine’s exports capacity so it continues feeding the world, and our farmers' livelihoods."
Storm clouds are brewing for the U.S. commercial property market, according to Berkshire Hathaway (NYSE:BRK.B) Vice Chairman Charlie Munger, who warned of a potential crash amid trouble in the U.S. financial system. "It's not nearly as bad as it was in 2008," he told the Financial Times. "But trouble happens to banking just like trouble happens everywhere else. In the good times you get into bad habits. When bad times come they lose too much." While Berkshire has a history of supporting American banks through cycles of financial instability - such as investing $5B in Bank of America (BAC) in 2011 and coming to the aid of Goldman Sachs (GS) in 2008 - things are different this time around, Munger explained, as investors keep an eye on office REITs, malls, and shopping center players. (30 comments)
In Asia, Japan +0.9%. Hong Kong closed. China closed. India closed.
In Europe, at midday, London closed. Paris closed. Frankfurt closed.
Futures at 6:30, Dow flat. S&P flat. Nasdaq flat. Crude -2% to $75.23. Gold -0.1% to $1996.40. Bitcoin -2.5% to $28,531.
Ten-year Treasury Yield unchanged at 3.45%
Today's Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
Companies reporting earnings today »
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