Famed financier and healthcare expert Michael Milken doesn’t think the US is trapped in a banking crisis, but the turmoil does offer an important lesson for investors, management teams, and regulators.
“This is not the 1980s, it’s not the 1970s, it’s not the Great Financial Crisis,” Milken told Yahoo Finance Live at the 2023 Milken Institute Global Conference (video above). “But it’s a lesson again that we need to match those that buy long-term assets with those that have long-term liabilities like pension funds, insurance companies. And that our financial institutions cannot run a mismatched book of short-term liabilities and long-term assets.”
Others in the banking space seemed to have forgotten that playbook.
For JPMorgan, the crisis purchase is nothing new: The bank purchased Washington Mutual and Bear Stearns at the height of the Great Financial Crisis more than a decade ago at firesale prices.
JPMorgan agreed to assume $173 billion in assets, $30 billion in securities, and all of First Republic’s $92 billion in deposits.
The deal is expected to boost JPM’s net income by $500 million annually. It will also boost JPM’s efforts to capture more investing dollars from high-net-worth clients.
“While this [deal] represents yet another regional bank failure in the last month or so, we do believe that this should be an idiosyncratic situation and not lead to bank contagion,” Wedbush analyst David Chiaverini said.
First Republic’s downfall comes mere weeks after Silicon Valley Bank and Signature Bank went bust amid a bad bet on Treasuries. The market turmoil also sent ailing Credit Suisse into the arms of UBS to be saved.
Banking leaders such as Citi CEO Jane Fraser told Yahoo Finance at the Milken Conference that the financial system is stable after the First Republic deal.
That’s a sentiment shared by Milken.
“The banking system itself has built up substantial equity and safeguards,” Milken said. “So this isn’t really an issue for the overall banking system.”