'First Republic is bigger than HDFC Bank': Capitalmind's Deepak Shenoy weighs on latest US bank failure

Deepak Shenoy, founder, Capitalmind on Monday was mystified that stock markets are shrugging off collapse of three bank failures in the last two months, with First Republic being the latest casualty. 

Jamie Dimon's JPMorgan Chase & Co emerged as the winner of a weekend auction of First Republic Bank, in a deal that is meant to draw a line under a recent banking crisis but comes at the cost of making the largest US bank even bigger.

JPMorgan will make a payment of $10.6 billion to the US Federal Deposit Insurance Corp (FDIC) as part of a deal that will see it take control of most of the assets of the San Francisco-based bank. The bank will get access to First Republic's coveted client base made up of the wealthy.

It will cost FDIC's Deposit Insurance Fund (DIF) about $13 billion, according to the regulator's initial estimate.

California regulators also seized First Republic and put it into FDIC receivership alongside the sale of its assets, marking the third failure of a major US bank in two months and the largest since the Washington Mutual in the 2008 financial crisis.

"First Republic is a massive bank. It's bigger than HDFC bank with some $230 billion in assets. JPM will take over all deposits - so no loss to depositors. FDIC estimates it will lose $13 bn (that's Rs 100,000 cr+!) on the loss share on loans that JPM has to take over," tweeted Shenoy.

He's also mystified that the stock markets have been resilient amid the bank failures that US has witnessed in 2023 due to rising interest rates. 

"Three of the top 5 bank failures in the US have happened in the last two months. Stock markets have taken it and moved on. So far. Sometimes market reactions are super strange," tweeted Shenoy. 

First Republic disclosed last week that it had suffered more than $100 billion in outflows in the first quarter and was exploring options, increasing stress in the banking sector.

"But gotta say this: The US FDIC speed of action is incredible!" Shenoy concluded his thread. 

Global banking has been rocked by the closure of Silicon Valley Bank and Signature Bank in March, as deposit flight from US lenders forced the Fed to step in with emergency measures to stabilize markets while Switzerland's Credit Suisse had to be rescued by rival UBS. Those failures came after crypto-focused Silvergate voluntarily liquidated.

With inputs from Reuters