The Dow Jones Industrial Average inched lower Monday in the wake of the government’s seizure of First Republic over the weekend and the bank’s subsequent sale to JPMorgan Chase.
The Dow dipped 46.46 points, or 0.14%, to end the session at 34,051.70. The S&P 500 ticked down 0.04% to close at 4,167.87. The Nasdaq Composite fell 0.11%, ending at 12,212.60.
JPMorgan Chase shares rose 2.1% after it emerged as the winner of a weekend auction for First Republic. The big bank has acquired all of troubled lender First Republic’s deposits and a “substantial majority of assets.” This deal means that JPMorgan Chase, already one of the biggest U.S. banks, will become even larger.
The arrangement, according to Jamie Dimon, CEO of JPMorgan Chase, ends much of the banking industry’s fallout that began with the abrupt failure of Silicon Valley Bank in March.
“Only a certain number of banks were offsides in this manner. This very much settles them all; this aspect of the issue is done,” Dimon said in a call to shareholders after the deal was announced. “There may be another minor one, but this pretty much ends them all.
The CEO of Infrastructure Capital Management, Jay Hatfield, was concerned that the acquisition agreement may stop additional volatility among the regional bank equities.
“I wouldn’t be shocked if short sellers continued to assault regional banks. Not so much during earnings season, but more as May and June approach and individuals start searching for shorts to hedge their book, he said.
“With the debt crisis looming, I’d be surprised if we didn’t see some other banks come under attack,” continued Hatfield. “Especially [with] the Fed raising rates [and] putting tremendous pressure on the financial system by maintaining the yield curve so steeply inverted.”
On Monday, the SPDR S&P Regional Bank ETF (KRE) fell, losing more than 2%. Shares of PacWest fell 10.6% while Zions Bancorp shares fell 3.7%.
Deposits fell by more than 40% in the first quarter, according to data released by First Republic last week, which contributed to additional losses in the stock’s already precarious price. Since the year’s beginning, shares have fallen 97%. Since Monday, trading in the stock has been suspended.
This week’s earnings announcements from a number of well-known corporations are anticipated by investors. The IT juggernaut Apple, along with Qualcomm and AMD, will be announcing their quarterly results.
The failure of First Republic and any possible repercussions heighten the anxiety ahead of the Fed’s interest rate decision on Wednesday. The expectation is for the central bank to increase rates once more before halting.