Highlight of the Week
Federal Reserve Raises Interest Rates 25 bps
- The FED raised the benchmark Federal Funds Rate (FFR) by 25 basis points to a range of 5-5.25%.
- This marks the 10th consecutive rate hike as the FED aims to push inflation to 2% and slow an economy that added an average of 345k jobs a month in Q1 of this year.
- FED Officials have signaled further hikes are on the way as many are worried about stopping rate hikes too soon amid persistent and strong inflation.
- Those cautious about further hikes point to the lagged effects on the banking sector amid the sale of First Republic to JPMorgan on Monday and the previous bank failures of Silicon Valley Bank and Signature Bank.
Rate Curves
Rapid Report:
First Republic (FRC) Seized and Sold to JPMorgan
- A $30 billion injection from the largest US banks in March kept First Republic afloat until Monday. They were sold to JPMorgan after the FDIC held a bidding process for FRC’s $233 billion in assets. Citizens, PNC and Fifth Third also submitted bids to the FDIC.
- FRC is the second largest bank failure in US history, and it follows the March failures of SVB and Signature which were the third and fourth largest.
- FRC was known for its so called “Jumbo Mortgages”. These mortgages provided low interest rates to high-net-worth individuals at very low rates. Mark Zuckerberg got a mortgage at First Republic in 2012 for $6 million at a starting rate of 1.05%.
- FRC had around $137 billion in low-interest mortgages that would have to be marked down by about $19 billion if sold. This along with another $8 billion in markdowns led to $27 billion in unrealized losses, far greater than the $13 billion in tangible common equity.
- JPM is now twice the size it was in 2006. The bank has benefited not only from the recent acquisition but a surge of new depositors following the bank failures in March.
A Look Back on SOFR Tenors over the Last 5 Months
