Preview: JPMorgan investors to scrutinize First Republic takeover

First Republic Bank

19/05/2023 17:44

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 the bank's purchase of failed First Republic Bank, as well
as about succession, following James Gorman's plan to step down
as Morgan Stanley CEO.
    Analysts will seek more details about the deal and
JPMorgan's plans to integrate First Republic's business into the
largest U.S. bank.
    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 down by authorities.
    Dimon had said that he expects blowback from the FRC deal
earlier this month in an interview on Bloomberg TV.
    An acquisition of this scale will raise question on
integration, execution risks, employee retention among others,
analysts believe.
    "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 adding that they expect FRC to be
additive to JPM's consumer and community banking business.
    JPMorgan has made 19 acquisitions since 2020 but the last
major purchase of this scale by the lender was in 2008 of Bear
Stearns. 
    
    SUCCESSION 
        After Morgan Stanley  MS.N  CEO James Gorman's
announcement on Friday to step down over the next 12 months, all
eyes are going to be on Dimon's succession plan.
        The 67-year old has been at the helm for over 17 years,
longer than Gorman, who at 64 years has been the CEO for 13
years.
    JPM's this year's proxy statement has identified COO 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.”
    Pinto who has been with the bank for nearly four decades is
currently the president and chief operating officer of the bank.
        ECONOMY
  
    As JPMorgan's performance and outlook is widely seen as an
economic bellwether, all eyes are also going to be on any
warning signs it forecasts about the economy and its likely
impact on the banking industry, even though the bank seems
largely insulated for now.
    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. 
    The CEO along with other executives met Janet Yellen in
Washington this week to discuss the health of the banking system
and the debt ceiling issue, a source said. 
    
    GROWTH
    In its first quarter earnings, the country's largest lender
emerged as one of the biggest beneficiaries of the recent
banking turmoil, brushing aside concerns that roiled the banking
industry after the collapse of two lenders in March. 
    The investor day should further highlight the “Goliath is
Winning” theme, 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," said 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 clarified that it is unlikely that they will
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)
 ((Nupur.Anand@thomsonreuters.com; +1 646 240 2975;))