Stocks were choppy to start the new month amid reports that regulators seized First Republic Bank (FRC) over the weekend and that JPMorgan Chase (JPM) will buy the majority of the embattled regional lender's operations. While the news had a positive effect on JPM's share price, not all bank stocks closed higher today.
First Republic's woes have made plenty of headlines since the bank crisis unfolded in March with the failure of Silicon Valley Bank. The regional lender's problems only got worse when it reported earnings last week, revealing deposits plunged in the first quarter. Rumors of a potential takeover by the Federal Deposit Insurance Corp. (FDIC) began swirling last Friday, with the regulatory agency taking control of First Republic over the weekend – marking the second-largest U.S. bank failure on record.
What was even more noteworthy, perhaps, was that the FDIC quickly agreed to sell most of First Republic's assets to JPMorgan Chase, although it received bids from several other banks including Citizens Financial Group (CFG, -6.9%) and Fifth Third Bancorp (FITB, -1.5%), both of which ended lower today. JPM will assume all of First Republic's $92 billion in uninsured and insured deposits, as well as $173 billion in loans and $30 billion in securities. As part of the agreement, JPMorgan Chase will not take on any of First Republic's corporate debt or preferred stock.
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"This part of the crisis is over," said Jamie Dimon, CEO of JPMorgan Chase, in the company's conference call on the takeover. "Everyone should just take a deep breath."
JPM jumped 2.1% on the news, easily making it the best Dow stock today. Several other financial stocks also gained ground, including Citigroup (C, +0.4%) and Wells Fargo (WFC, +1.6%). Trading on FRC stock was halted.
As for the major indexes, the blue chip Dow Jones Industrial Average slipped 0.1% to 34,051, the broader S&P 500 ended marginally lower at 4,167, and the tech-heavy Nasdaq Composite closed down 0.1% at 12,212.
Fed meeting, Apple earnings, jobs report on tap
Today's onslaught of headlines was just the beginning of a busy week on Wall Street. Outside of regional bank stocks, the next Fed meeting is top of mind for investors. Fed funds futures are currently pricing in a 92% chance that the central bank will raise interest rates by a quarter of a percentage point on Wednesday. But what Wall Street really wants to know is if this will be the end of the Fed's rate-hiking cycle or if the central bank is planning more rate hikes.
"The Fed will likely adjust the statement's language to indicate that they may pause continued rate hikes for the time being," says Jeffrey Hibbeler, director of portfolio management and senior portfolio manager for fixed income at Exencial Wealth Advisors. "Importantly, this will be contingent on the evolution of incoming economic data, and they will be prepared to adjust policy accordingly if needed."
In addition to the Fed meeting, this week's earnings calendar is jam-packed, with tech giant Apple (AAPL) the most notable name in the lineup. Friday's jobs report will also draw plenty of attention, with Goldman Sachs economists expecting the data to show payrolls expanded by 225,000 in April, slower than the 236,000 added in March.
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