Sunday Is For Bank Shopping

Plus: The CEO of Mercedes Benz says a China divorce is delusional ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 1, 2023

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TOGETHER WITH

Good morning and happy Monday.

Don’t bother to turn off the TV. It might do that all by itself.

Hollywood’s writers and the major networks they work for have till the end of the day to reach contract agreements, and if they don’t, we could be looking at the second writers strike in the past four decades. The Writers Guild said late night comedy shows like “Saturday Night Live,” “Jimmy Kimmel Live” and “Real Time with Bill Maher” would likely be the first programs to go off the air until contract disputes were settled, according to The Wall Street Journal. On the bright side, those shows haven’t been funny in years.

Morning Brief

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Ask not for whom the bank runs. It runs for thee.

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European countries are rethinking their China ties.

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Are IPOs getting their groove back?

Banks

First Republic Auctioned to JPMorgan Chase

Battered First Republic Bank has woken up as someone else’s bank, as its deposits — including uninsured ones — were bought by JPMorgan Chase after the embattled lender was seized by California’s financial regulator.

This comes after a fast-tracked, frenzied auction by an admittedly understaffed Federal Deposit Insurance Corporation to get the SF-based lender merged with a bigger bank. How was your Sunday?

Fall of The First Republic

First Republic managed to survive the chaotic bank runs of March thanks to a $30 billion infusion from the largest US banks, but that didn’t make its customers feel any safer. When it disclosed results for the first quarter last week, investors learned that First Republic customers had pulled $72 billion in deposits in the period, a more than 40% drop, and the bank’s stock is down more than 97% in 2023.

Rumors swirled going into the weekend that First Republic would end up being seized by the FDIC, as Silicon Valley Bank and Signature Bank had in March. So the FDIC scrambled to find a buyer for First Republic’s remaining assets, turning once again to Wall Street’s largest players. PNC Financial, Bank of America and JPMorgan Chase were reportedly among the final bidders in an express auction, but JPMorgan’s history as Wall Street’s lifeboat seems to have made them the obvious choice to take on what’s left of First Republic:

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The FDIC announced that starting today, First Republic’s 84 offices will reopen as JPMorgan Chase branches. On top of office space, JPMorgan will hoover up roughly $173 billion in loans, $30 billion in securities, and $92 billion in deposits.

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JPMorgan CEO Jamie Dimon (who acquired both Washington Mutual and Bear Stearns during the 2008 crisis) was instrumental in rallying the big banks and getting First Republic its $30 billion injection, and he has now vowed to get that money back to lenders.

The FDIC reportedly wanted to announce a deal Sunday evening, but JPMorgan being the buyer would have caused an inherent delay. The Riegle-Neal Act of 1994 bars any bank merger that results in one lender controlling more than 10% of the US’ total insured deposits. JPMorgan already controlled more than 16%, and would have needed a Federal Reserve waiver to take on First Republic.

That said, Dimon might be looking at acquiring First Republic as a defensive maneuver against shaky public faith in US banks. JPMorgan’s own chief investment officer, Bob Michele, told Bloomberg just last week that many lenders lucky enough to have survived March are not out of the woods, adding prophetically “I think it’s somewhat naive to say that this is just limited to First Republic.”

Share and Share Alike: The FDIC said it will share both losses and gains from First Republic’s loans with JPMorgan, but it definitely needs Dimon and Co. to handle the paperwork. The agency charged with safeguarding banks admitted on Friday that it failed to see Signature Bank’s looming meltdown due to widespread job “vacancies and the adequacy of the skillsets of the Dedicated Team” in the New York regional office. We’re picturing empty cubicles and lots of ringing phones this morning.

-Thornton McEnery

International

Mercedes-Benz CEO says Cutting Ties with China is “Unthinkable”

As the Neil Sedaka classic has it, “Breakin’ up is hard to do.” Ola Källenius would like to add that it is also financially catastrophic if the one you’re calling it quits with is your largest overseas trading partner.

Despite much of Europe re-evaluating its relationship with China, the Mercedes-Benz CEO told the Financial Times that cutting ties with the Middle Kingdom would be “unthinkable for almost all of German industry.”

Friend or Foe

Källenius’ statement might sound extreme but it’s perhaps understandable when you consider that China is the second-largest economy in the world right behind the US. Plus, it’s Mercedes’ largest market, responsible for 37% of the carmaker’s global sales. So Källenius knows just how important China is to his bottom line, and those of his fellow German executives as the EU’s biggest trading partner.

But China’s relationship with the US and its major allies isn’t getting any better, making the unthinkable seem nearly unavoidable. Beijing’s ties with Vladimir Putin, US sanctions on Chinese companies, the saber-rattling towards Taiwan, and the country’s aggressive grip on its own people have most European policy makers looking for new ways to get tougher on the Asian nation:

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Chinese companies like ByteDance, Huawei, and Hikvision might pose legitimate threats to the national security of its nominal trade partners. Lawmakers in the US, UK, Australia, and elsewhere have used that argument to impose sanctions and fuel intensifying trade wars with Beijing.

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Countries like the Netherlands, Italy, and Germany have all begun looking to the US for influence when it comes to exports and investments controls on China, Bloomberg reported.

Källenius agreed that the pandemic supply chain weaknesses did highlight his industry’s over-reliance on China, especially for substances like lithium, which powers electric vehicle batteries. But he added that “decoupling from China is an illusion, and also not desirable.”

Souring Relationships: Ties between China and some European countries seem to be heading south quickly. In a show of force, China recently set up a fleet of naval vessels and jets off the coast of Taiwan to conduct military drills. Political figures around the globe saw it as unnecessarily threatening. After a visit to China last month, German Foreign Minister Annalena Baerbock condemned any form of Chinese aggression toward Taiwan and told her country’s lawmakers, “China for us is a partner, competitor and systemic rival. Unfortunately our impression was — I want to emphasize unfortunately — that the systemic rival aspect is growing ever stronger.”

–Griffin Kelly

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Markets

SoftBank’s Arm is Set to List on the Nasdaq Later this Year

(Photo Credit: Miki Yoshihito/Unsplash)

Two years after setting a record for IPOs, American stock exchanges have been putting up mostly zeros in 2023, but a blockbuster initial public offering may be on the horizon.

Japanese investment manager SoftBank plans to list chipmaker Arm on the Nasdaq in the coming months, setting the stage for the largest IPO this year in what has been an eerily quiet new issuance market.

Call it a Comeback

IPOs were all the rage back in 2021, when about 900 new US listings raised just over $280 billion, according to S&P Global. But the next year, they slowed to a crawl when 150 listings raised just $21 billion. And today, IPOs are down 22% year-over-year, having raised only $2.35 billion in 2023, Reuters reported.

Softbank was lined up to sell Arm to leading computer tech giant Nvidia for $40 billion, but the deal was scrapped after facing too many obstacles from US and European antitrust regulators. Some Wall Street experts predict IPOs will return to former glory, and Arm just might be the catalyst:

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Softbank still hasn’t released any official numbers or when exactly Arm will debut on the Nasdaq, but sources told Reuters that the company is looking to raise between $8 billion and $10 billion.

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Another big IPO in the works is Johnson & Johnson’s Kenvue – the consumer health line that includes popular brands like Tyelonol, Listerine, and Zyrtec. The IPO is set to debut on the New York Stock Exchange soon with the hopes of raising roughly $3.5 billion.

Another Shot: Arm has a collection of legacy firms leading its journey to market including JPMorgan, Barclays, Mizuho, and of course, Goldman Sachs. While the David Solomon-led investment bank was head manager for some of the biggest IPOs during the 2021 boom, it was also the one of the lead underwriters for SoftBank’s biggest disappointment: the Vision Fund, an investment vehicle that consistently lost billions on failed startups. Obviously absent from the list of Arm creditors is Morgan Stanley. SoftBank CEO Masayoshi Son continues to be a fan of second chances instead of finding someone new.

–Griffin Kelly

Extra Upside

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I now pronounce you: Bride says her wedding dress is being ‘held hostage’ in billing dispute with bankrupt Bed, Bath & Beyond.

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Outer space bound: Elon’s $2 billion plan to get into orbit.

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Final boarding for Riviera Maya. The Daily Upside is giving you (and a plus-one) a chance to win a four-night stay at the brand-new Margaritaville Island Reserve in Riviera Maya. Turn your email away message on, pack your bags, and enter here for a chance to win.

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