When Life Gives You Lemons, Buy a Bank | QPOL Issue #47
The how and why JP Morgan bought First Republic, BlackRock’s hail Mary, and further implications of the Fed's policy.
First Republic Bank went into receivership over the weekend and resulted in JP Morgan as the bid winner paying out $10.6 billion to the Federal Deposit Insurance Corporation (FDIC). JPM as many have said in the media “got a pretty sweet deal”, so sweet that many institutions are even envious of the deal. According to analysts, the deal may add 1-2% to JPM’s net income. Kinda strange to be envious of buying a collapsing bank when the dominant narrative is that the banking system is going to hell in a hand basket, isn’t it?
Zooming out, this “meltdown” in regional banks seems nothing other than an operation. This honestly just looks like a coordinated attack to make Powell pivot. Same old song and dance. It also looks like payback for Dimon’s earlier comments “this part of the recession is over.” Looks like you got a lot of Davos guys (*cough cough* Larry Fink *cough cough*) going, “oh yeah, Jamie? You think so, huh Jamie? Watch this.”
The fact is that FRC was relatively healthy, and their clients consisted of credit worthy high network individuals. On the other hand, SVB, Signature, and SIlvergate were not so healthy, especially when Fed policy started to change for good and divorced themselves from zero bound monetary policy (or as Danielle DiMartino Booth likes to call it, the “Original Sin/Bernanke Doctrine”.
The truth of the matter is the NY Fed is working to take out San Francisco Fed. All these regional banks going down were under the purview of SF Fed commie policy under Yellen which only survives under ZIRP. SVB, Silvergate & Signature were taken out by the Fed to reign in shadow money creation and FRC was retaliation. It’s no argument that this is war.
We’re gonna unpack some of the reasons and nuances of JPM buying out FRC and the implications this has for Fed policy and the players on both sides down the road. It of course starts with JPM and how they got the opportunity to swoop in on FRC in the first place.
FDIC Clout
JP Morgan is the largest bank in the US. Therefore, they contribute the most in FDIC fees. Regardless if JP Morgan won this bidding war, they would have had to pay up via the fees that contribute to the Federal Deposit Insurance Corporation.
In hindsight, letting FRC fail as a chess move does sound reasonable in their position. JPM just scoops it up as additional assets added to their balance sheet for pennies in the dollar. The majority of the banks that have collapsed so far have clearly been those that were taken out by team Fed, and FRC’s “failing” was merely part of this said chess move for JPM to mark their territory and financial dominance on the board.
If JPM contributes the most to FDIC, they might as well absorb FRC assets instead of taking a total loss via FDIC fees that they were gonna pay anyway. So far for JPM, it’s been a win:win - less Davos controlled banks that only survive under zero interest rate policy, and free money. Life, meet lemons…
BlackRock’s Road to Nationalization
The bidding war over First Republic came down to JP Morgan and PNC Bank. A little known fact that may have slipped people’s minds is that PNC is owned by BlackRock. Yes, that BlackRock. BR was in the race against JPM to scoop up FRC for one very important reason: to claim status of being a Systemically Important Financial Institution (SIFI).
SIFI status would basically enable BR to get bailed out by the US government. This would also mean that if BR is ever in troubled, so would the majority of pensions. A BR bailout wouldn’t just mean bailing out a failing hedge fund, but essentially the nationalization of the entire US pension system, (yes, your pension/401k is most likely trapped in some BlackRock fund. Might wanna pull out now and take matters into your own hands…also not financial advice…).
This Davos goal is in line with their lofty ideals of MMT and the collapse of the commercial banking system and the creation of private capital. It’s global communism they’re after. Who does this NOT benefit? Jamie Dimon, all bank regional and commercial banks, and the Federal Reserve System itself.
Just as Goldman did in 2008, BlackRock looks to turn itself into a bank. They need to either get a banking license or acquire a small distressed bank. As this banking crisis continues, there may be many more banks to choose from and perhaps Pac West will be their next victim.
This Is War
BlackRock and Davos et.al will continue manipulating the markets through futures, headlines, or whatever leverage they have left to stoke fears that the US banking and financial system is on the brink of collapse. As soon as the next bank goes into FDIC receivership, they’ll be there with their proxy bank (PNC again perhaps) in attempt to win the bidding war and be eligible for SIFI status.
The ones who suffer most under Powell’s interest rate hikes and QT are those who benefited the most from the fantasy land that was ZIRP (BlackRock and similar ilk). The CARES Act gave BR access to the Fed Window, undermining the authority and privilege of the primary dealers. One really starts to put into perspective what Powell meant went he said JPM buying FRC was an “exception”, and that exceptional circumstance loudly screams “the Federal Reserve and Commercial Banking System won’t let these globalist commies go after our lunch and whatever is left of American capitalism as we know it!”
The Fed and major NY banks are asserting hawkish monetary policy to restore order in financial markets by wiping out the over-leveraged garbage in the economy and controlling the over-leveraged offshore dollar markets via SOFR. Doing so will not be without casualties, and we will see a restructuring of the financial system in real time.
Breaking a few eggs to make an omelet is well worth it, especially when the majority of the eggs are rotten zombie companies (which make up 1/5 of most companies, oh by the way) and funny-money banks that only survive with ZIRP, and the omelet is a much more sound and sustainable economy under a new set of rules. This isn’t simply reorganizing the deck chairs on the Titanic. This is war.
~ Phil Gibson
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