Preview: JPMorgan investors to scrutinize First Republic takeover

First Republic Bank

19/05/2023 19:34

(Adds details on succession plans,)
    By Nupur Anand
       NEW YORK, May 19 (Reuters) - As JPMorgan Chase & Co
 JPM.N  CEO Jamie Dimon prepares to take the stage for the
bank's investor day on Monday, he can expect plenty of questions
about its purchase of failed First Republic Bank.
    Analysts will seek more details about the deal and
JPMorgan's plans to integrate the business into the largest U.S.
bank.
    JPMorgan's succession plans will also be in focus after
Morgan Stanley's CEO said on Friday he would step down within a
year.
    
    Here are some key themes that investors are watching. 
 
        FIRST REPUBLIC
  
    JPMorgan has agreed to undertake $173 billion of the failed
bank's loans, $30 billion of securities and $92 billion of
deposits after First Republic was shuttered by authorities
earlier this month.
    Dimon has said he expects blowback from the transaction,
according to an interview on Bloomberg TV.
    An acquisition of this scale will raise question on
integration, execution risks, employee retention among others,
analysts said.
    "JPM views FRC as more complementary to its mass affluent
approach than its ultra high net worth offering," Jason
Goldberg, Brian Morton and Matthew Kesselhaut analysts at
Barclays said in a note. They expect First Republic to be
additive to JPMorgan's consumer and community banking business.
    JPMorgan has made 19 acquisitions since 2020 but the last
major purchases of this scale were in 2008 during the financial
crisis-era takeovers of Bear Stearns and Washington Mutual. 
    
    SUCCESSION 
        After Morgan Stanley  MS.N  CEO James Gorman's
announcement said he plans to step down next 12 months and take
on the role of executive chairman, Dimon's succession plan will
garner some attention.
        Dimon, 67, has been at the helm for more than 17 years.
That is longer than Gorman, who at 64 years has been the CEO for
13 years. 
    The company's proxy statement identified its President and
Chief Operating officer Daniel Pinto “as a key executive who is
immediately ready to step into the role of sole CEO, should the
need arise in the near-term.”
        ECONOMY
  
    JPMorgan is viewed as an economic bellwether. Its
executives' commentary is watched closely by financial markets.
    Dimon has warned that a failure to raise the U.S. debt
ceiling is potentially catastrophic, and the bank has created a
war room to tackle the situation with daily meetings. 
    He and other financial CEOs met Janet Yellen in Washington
this week to discuss the health of the banking system and the
debt ceiling, a source said. 
    
    GROWTH
    The country's largest lender emerged as one of the biggest
beneficiaries of turmoil in the banking industry after the
collapse of two lenders in March, reporting first quarter
profits that beat expectations and an influx of deposits.  
    The investor day should underscore the notion that “Goliath
is Winning,” Wells Fargo analyst Mike Mayo said in a note.
    JPMorgan is also expected to reiterate its target for return
on tangible common equity -- a key metric which measures how
well a bank uses shareholder money to produce profit -- of 17%. 
    "What we may hear about is what this ROTCE could be if a
recession hit in '23, which would translate into higher credit
costs and potentially rate cuts," wrote Erika Najarian, Robert
Placet and Nicholas Holowko, analysts at UBS.
    Commentary around deposit growth, strategic opportunities,
loan loss provisions, and expenses are some of the other themes
that will be keenly watched. 
    Dimon has said that the bank is unlikely to acquire another
struggling lender.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
ANALYSIS-Bank buyers expect sweeteners as US government sets new
bar     urn:newsml:reuters.com:*:nL1N3713HY
ANALYSIS-Overexposed US regional banks could sell commercial
property loans     urn:newsml:reuters.com:*:nL1N37F0AD
Regulators seize First Republic Bank, sell assets to JPMorgan   
 urn:newsml:reuters.com:*:nL1N36Y08H
Sen. Warren seeks details on 'troubling' sale of First Republic
to JPMorgan     urn:newsml:reuters.com:*:nL1N37F2J4
Ex-First Republic CEO blames contagion for bank's collapse   
 urn:newsml:reuters.com:*:nL1N37E08E
US bank regulators vow tougher rules, oversight after bank
failures     urn:newsml:reuters.com:*:nL1N37D1SO
Big US banks to pay billions to replenish failure fund   
 urn:newsml:reuters.com:*:nL4N37848Q
JPMorgan CEO Dimon says bank is convening a 'war room' on debt
ceiling     urn:newsml:reuters.com:*:nL1N3781EC
SEC probing First Republic Bank executives for insider trading -
Bloomberg News     urn:newsml:reuters.com:*:nL4N3723BE
BREAKINGVIEWS-First Republic’s rescue cements ‘too big to fail’:
podcast     urn:newsml:reuters.com:*:nL8N37131B
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 (Reporting by Nupur Anand in New York; Editing by Nick
Zieminski and Lananh Nguyen)
 ((Nupur.Anand@thomsonreuters.com; +1 646 240 2975;))